Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

MASONIC TRUST FOR GIRLS AND BOYS BILL

ASSOCIATED BRITISH PORTS BILL

Read the Third time, and passed.

LONDON REGIONAL TRANSPORT BILL (By Order)

Order for consideration, as amended, read.

To be considered upon Tuesday 5 May.

YORK CITY COUNCIL BILL [Lords] (By Order)

Order for Second Reading read.

To be read a Second time upon Thursday 7 May.

CITY OF WESTMINSTER BILL (By Order)

Order for Second Reading read.

To be read a Second time upon Thursday 7 May at Seven o'clock.

TEIGNMOUTH QUAY COMPANY BILL (By Order)

Order for Second Reading read.

To be read a Second time upon Thursday 7 May.

LONDON DOCKLANDS RAILWAY (BECKTON) BILL (By Order)

Order for Second Reading read.

To be read a Second time upon Tuesday 5 May.

Oral Answers to Questions — NATIONAL FINANCE

Family Taxation

Mr. Nellist: asked the Chancellor of the Exchequer how the tax position of a couple with two children, receiving half average earnings, has changed since 1979; and if he will make a statement.

The Financial Secretary to the Treasury (Mr. Norman Lamont): Their real take-home pay is up by 17½ per cent., but despite that they pay almost £1 a week less in income tax and national insurance contributions than they would have if Labour's 1979 tax regime had simply been adjusted in line with inflation.

Mr. Nellist: I asked a question about the Tories' tax position, not Labours' tax position. Why does the Minister

not at least repeat the answer given in Hansard on 27 March this year—that the real position for a couple, with two children, on half average earnings is that in 1979 they paid 12 per cent. of their income in direct tax while today they pay 16·5, per cent. a real rise of over a third in direct taxation? At the same time, yuppy employees in the City of London on 2,000 times average earnings pay 25 per cent. less in direct taxation. The Prime Minister said before the 1979 and 1983 general elections that taxes should be cut. Taxes were not cut then, so why should we believe her today?

Mr. Lamont: I repeat, for the hon. Gentleman's benefit, that the take-home pay of a person on half average earnings is up by 17½per cent. That is a very substantial increase. As the hon. Gentleman is so indignant about the burden of taxation, perhaps he could say what the effect will be of Labour's policies.

Mr. Chapman: If national insurance conributions are included in assessing the take-home pay of a person on half average industrial earnings, as my hon. Friend the Financial Secretary said in his first answer, does he agree that, although great progress has been made in reducing the overall taxation and increasing the amount of take-home pay of such a person, it is still about a quarter of his total gross pay? Therefore, does he agree that it must remain a high priority to reduce taxation levels further for such people?

Mr. Lamont: Of course. We are very firmly of the view that taxes ought to be reduced, and we keep on saying that. It remains the Government's objective to reduce further the burden of taxation. As my hon. Friend said, this is particularly important for the lower paid.

Dr. McDonald: Why will Ministers not come clean about this issue? Tax and national insurance contributions for those on half average earnings have gone up, as my hon. Friend the Member for Coventry, South-East (Mr. Nellist) stated, from 12 to 16 per cent. According to the Government's answer, even 2p off the standard rate has made no difference in the proportion of tax paid. Is the Financial Secretary not aware that the post-tax pay increases for the top earners have been at double the rate of increase of those on half average earnings? Since this question refers to the total burden of tax, will he admit that indirect taxes, including VAT, cost the very poorest almost a quarter of their income but the richest merely one sixth? When will Ministers come clean about their distribution of the burden of taxation?

Mr. Lamont: If the hon. Lady is so indignant about the burden of taxation on the poor, why did she vote against reducing it yesterday?

Profit-related Pay

Mr. Hickmet: asked the Chancellor of the Exchequer what response he has received to the proposals for profit-related pay announced in his Budget.

Mr. Soames: asked the Chancellor of the Exchequer what response he has received to the proposals for profit-related pay announced in his Budget.

The Chancellor of the Exchequer (Mr. Nigel Lawson): I am glad to say that over 3,500 employers have registered their interest in profit-related pay with the Inland Revenue.

Mr. Hickmet: Is not the attraction of profit-related pay much the same as privatisation to those who work in the industries? It gives them a share in the industries and a share in the profitability of the industry in which they work.

Mr. Lawson: Yes, I believe that my hon. Friend is right. Indeed, I would go further and say that there are two distinct benefits that arise from profit-related pay. The first is the greater interest that employees have in the profitability of their company and the better labour relations that stem from that. The second is the greater degree of flexibility that is introduced into the pay system. One of the big problems in this country has been an excessively rigid pay system. Therefore, I am particularly glad that as many as 3,500 employers, many of them large employers, have already registered their interest in profit-related pay with the Inland Revenue.

Mr. Speaker: Mr. Soames.

Mr. Skinner: He is not here.

Mr. Speaker: Mr. Skinner.

Mr. Skinner: Ever present.
Now that the Chancellor seems to be in full stride regarding profit-related pay, will he answer the question that has been put to us continually by the lobbies of the nurses and the other Health Service workers? How could the nurses, ill-paid as they are, obtain any benefit from the profit-related pay system that the Chancellor keeps bandying about?

Mr. Lawson: Nurses should benefit considerably from the reduction in the basic rate of income tax by 2p in the pound, which the hon. Gentleman and his hon. Friends voted against yesterday.

Rates

Mr. Holt: asked the Chancellor of the Exchequer what estimate he has made of the impact on the economy of the level of local authority rates and spending now announced for 1987–88.

The Chief Secretary to the Treasury (Mr. John MacGregor): Local authorities in Great Britain are planning to increase their current expenditure by more than 8 per cent. this year over last, well above inflation and what the Government believe to be necessary. The excess will be met from the reserve, and will not add to the planning total, but this inevitably means less is available for other services. The result of this overspending is rate increases averaging nearly 7 per cent., so it also means a higher than necessary additional impost on businesses.

Mr. Holt: Does my right hon. Friend agree that the Audit Commission has established that there are potentially £2 million-worth of savings that could be made within local government, particularly if places such as Cleveland cut out the £250,000 being spent this year on political advertising at the ratepayers' expense?

Mr. MacGregor: I agree with my hon. Friend. By a slip of the tongue I think that my hon. Friend said £2 million-worth of savings. In fact, just to get it clear, the Audit Commission believes that £2 billion-worth of savings are available. He is absolutely right about Cleveland. I understand that that Labour-controlled council is increasing its total expenditure by over 13 per cent. this

year, which is the third highest increase for the counties. It is no wonder, therefore, that Cleveland has the second highest county council rate in England, and that is bound to have a heavy adverse effect on businesses there. My hon. Friend is entirely right.

Mr. Robert Sheldon: Before the right hon. Gentleman quotes the Audit Commission too much, he should recall that the head of the Audit Commission, John Banham, now the head of the Confederation of British Industry, has gone on record as saying that local government is more efficient than central Government. Should the right hon. Gentleman not be looking to his own areas of expenditure rather than berating those local authorities?

Mr. MacGregor: The right hon. Gentleman, who is always fair in these matters, will know that we have done a great deal in that respect. We have got the numbers of civil servants in central Government down substantially without reductions in the effectiveness of services. In many other ways, and through many initiatives, we are making substantial savings in administration and in the cost of the programmes. I entirely agree with the right hon. Gentleman that it is important to achieve efficiency in central Government as well as local government, and we devote a great deal of our time to doing that.

Mr. McLoughlin: Does my right hon. Friend agree that, although most Conservative local authorities have increased rates by 5·5 per cent., Labour, alliance and hung councils have increased their rates by about II per cent.? Will he also consider what the alliance leader of Derbyshire county council said? She said that she supported the Labour party on most matters but could not support it on its rate increases. Is that not gross hypocrisy on the part of the alliance? Is the alliance trying to have it both ways by supporting extra spending without considering the consequences of such spending? Will he acknowledge that Derbyshire is the highest rated council in the country?

Mr. MacGregor: On the latter points, my hon. Friend is entirely right. Indeed, I listened with interest to what he said about the alliance leader in his county. It rather mirrors what the Liberal and Social Democratic Members do in the House. They urge a good deal more expenditure, vote against tax cuts and then do not know where to go from there. I agree also with what my hon. Friend said at the beginning of his question. It is significant that rate increases in Conservative councils this year are 5·4 per cent., whereas in Labour councils, other than rate-capped councils, they are 12·4 per cent. That speaks for itself. The burden on domestic ratepayers and businesses is clear.

Mr. Campbell-Savours: Is it not true that the new rating system—the community charge—will have a dreadful, catastrophic impact on many industrial towns and their economies in the northern region? Have the Government measured the impact that the new tax will have in so far as it will wipe out tens of thousands, hundreds of thousands, indeed millions, of pounds from spending power in such communities?

Mr. MacGregor: When the hon. Gentleman talks about business, he is talking, not about the community charge, but about the new non-domestic national business rate that we shall introduce. He will discover that many businesses in his area will find that it is more beneficial to them than the present system.

Mr. Greenway: Will my right hon. Friend comment on the effect on people in Ealing, and my constituents in particular, of the rate increase of 65 per cent. that was imposed by Ealing council? That will represent an average increase of £5 or £6 per week, and some people will have to pay £12 a week. It will hurt the elderly, the disabled, industrialists, jobs, prices and everything else. Is it not wicked and disgraceful? Is it not typical of members of the modern Labour party? That is just what they would be like in government, and that is why they must be strongly rejected.

Mr. MacGregor: I entirely agree with my hon. Friend. He has clearly made the point about the impact of a Labour council in Ealing. Bearing in mind the rate increases in Conservative-controlled councils, I am sure that many ratepayers in Ealing will wish that they lived under a Conservative administration at local level and therefore benefited from the much lower rate increases that are happening elsewhere.

Mr. Nellist: When the Minister replied to the hon. Member for Langburgh (Mr. Holt) about the amount of money spent on political advertising, why did he not admit to the House that £42 million — [Interruption.] If the Chancellor would keep quiet, the Minister could hear me. The sum of £42 million was spent on the sale of British Gas. Hundreds of millions of pounds have been spent by the Government on political advertising of Rolls-Royce, British Telecom and the rest. The Minister prays in aid the Government's record on the Civil Service and the spending by central Government. If the Government are so clever, why are thousands of civil servants in Coventry and elsewhere out on strike this week because of pay cuts over the past seven years?

Mr. MacGregor: The hon. Gentleman is only envious that our policies on privatisation are so hugely successful and of great benefit to the economy and are being copied around the world. It is just a pity that he does not understand the significance of them.

Charities

Mr. Nicholas Basker: asked the Chancellor of the Exchequer what representations he has received seeking changes to the taxation treatment of charities.

The Economic Secretary to the Treasury (Mr. Ian Stewart): Charities have enthusiastically acknowledged the very substantial measures on the tax treatment of charitable giving and other aspects of charitable work introduced by the present Government.

Mr. Baker: Is my hon. Friend aware that charities have been and are conducting political campaigns? Oxfam has been conducting one, and War on Want is in the process of doing another. Indeed, the director of Oxfam has conducted a campaign in The Times today. Does my hon. Friend agree that for four charities to conduct these campaigns is a fraud on those who subscribe to them and endangers the taxation advantages that the charities enjoy?

Mr. Stewart: Like my hon. Friend, I agree that the abuse of charitable funds in the way that he has described is deeply to be deplored and that that is not the basis on which tax relief is given. I shall draw my hon. Friend's remarks to the attention of my right hon. Friend the Home

Secretary, because the Charity Commission has responsibilities for seeing that charities do not abuse the funds that are entrusted to them.

Mr. Ashton: But is it not true that public schools enjoy charitable status, and have they not been turning out apparatchiks and Lobby fodder for the Conservative Benches for a century? What does the Minister intend to do about that?

Mr. Stewart: I am sorry that the hon. Gentleman does not regard education as a suitable matter for charitable support.

Opposition Parties' Policies (Costs)

Mr. Sims: asked the Chancellor of the Exchequer whether he will prepare estimates of the cost of the programmes announced by the Opposition parties.

Mr. MacGregor: I have already costed the Labour party's commitments, which would amount to an additional £34,000 million in a full year. The SDP and Liberal parties' pledges are so vague and confused that they cannot be costed.

Mr. Sims: I thank my right hon. Friend for that reply. I assume that the £34 billion figure that he has mentioned has been calculated by assessing the cost of various items of policy to which the Labour party is pledged. Can he tell the House whether he has received any representations or objections about specific items that he has costed? If he has not, does he agree that, if the Labour party does not object to the parts, it can hardly object to the whole?

Mr. MacGregor: I have often made clear exactly what items are in the £34 billion commitment and how it has been costed. I have made the costings available to the Labour party and have said that, if it will point out a single one that is not official Labour party policy, I will withdraw it. The Labour party has not done so. Almost weekly, Opposition Front Bench spokesmen for social security, education, overseas aid and health keep confirming the pledges. I again ask the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) when he is going to repudiate them. It is perfectly clear that we would have the same situation as the one that we had under the last Labour Government, because if a Labour Government carried out their spending programme they would be back to the International Monetary Fund in no time.

Mr. Winnick: As regards costing programmes, would the Chief Secretary be good enough to tell the House and the country how much extra the average household would have to pay if VAT were to be charged on children's clothing and other essential items, including food? Is it not perfectly clear that what is now being planned by the Tories, should they return, is precisely to levy VAT on such items?

Mr. MacGregor: It is quite extraordinary that the hon. Gentleman can come forward with suggestions like that, when he must know that, in order to pay for the kind of programme to which his party is committed, VAT would have to go up very substantially. The cost of his party's programme would be the equivalent of a VAT rate of just under 50p in the pound. The hon. Gentleman puts that point because he is so desperately anxious to find a smokescreen for the cost of Labour's programmes and their tax implications for ordinary people.

Mr. Maclean: In view of the pledge made recently by the hon. Member for Stockton, South (Mr. Wrigglesworth) that the alliance would publish the costings of its policies before the election, purely in the interests of open government would my right hon. Friend agree to run the alliance programme through his Treasury computer? Will he also get his Treasury experts to cost the alliance programmes? Or are they so vague that it would be impossible to tell what they cost?

Mr. MacGregor: Indeed, there is nothing as vague as the alliance programme. I have been through the entire document "The Time Has Come", and it is impossible to cost its contents because the Liberals and the SDP do not pledge themselves specifically to anything. Whenever they do, they immediately have to go back to the drawing board, either because they are incapable of agreeing on the policies, or because they have not thought them through.

Mr. MacKenzie: First, might I ask the Chief Secretary, who precisely is paying for those costings? Is he using public money to do his own costings for the benefit of his colleagues and to prepare election ammunition? Secondly, if he is using public money for that purpose, will he note that some of us take strong exception to that? Thirdly, if the civil servants have got it massively wrong, where has that money been coming from and who is paying for the costings?

Mr. MacGregor: No additional public resources are employed in the costings.

Life Funds (Capital Gains)

Mr. David Atkinson: asked the Chancellor of the Exchequer if he has received representations concerning his plans to change the treatment of capital gains in the life funds.

Mr. Norman Lamont: A number of representations have been received and are being considered. I have also discussed the matter with the Association of British Insurers. There will be an opportunity for detailed debate in Committee on the Finance Bill.

Mr. Atkinson: Is my right hon. Friend aware that the life industry is concerned that his proposed changes in the capital gains of life funds will be at the expense of the savings of existing policyholders, who will as a result be put at some disadvantage against other forms of collective savings such as unit trusts?

Mr. Lamont: I note what my hon. Friend has said. Obviously, there will be further discussions about this. I do not necessarily accept that life policy holders will be disadvantaged compared with unit trust holders, because there are advantages for them too. For example, a unit trust holder will pay income tax up to his marginal rate and will pay capital gains above the threshold. We believe that the impact of the changes will be minimal, but, of course, we shall listen to what is said.

Mr. Blair: Is the Financial Secretary aware that this is of critical importance to mortgage holders? Is he also aware that 50 per cent. of new mortgages last year were endowment mortgages? Can he confirm that more than £1,500 will be lost on the payout from an ordinary £30,000 endowment mortgage if the Government's proposals go through? Why are the Government hitting millions of small investors with higher rates of tax, while leaving their friends in the City untouched?

Mr. Lamont: The impact on particular policies will vary according to different companies. I do not accept the figure that the hon. Gentleman mentioned. Some companies have said that there will be practically no effect. We estimate that the extra tax that would have been paid in 1985 on those policies would have been less than £20 million. That compares with the policyholders' funds of some £70 billion, so the impact will be very small.

Payroll Giving

Mr. Alan Howarth: asked the Chancellor of the Exchequer what information he has about the response to the new payroll giving schemes.

Mr. Ottaway: asked the Chancellor of the Exchequer whether he will make a further statement about the implementation of payroll giving schemes.

Mr. Ian Stewart: The new payroll giving scheme has made an encouraging start. The Inland Revenue has approved 11 agencies to run the scheme and 300 employers have already signed contracts to participate. I expect many more to follow.

Mr. Howarth: Does my hon. Friend agree that in the figures that he has given those 300 employers represent nealy 1 million employees, and that those figures mark a most auspicious start for the payroll giving scheme? Will he confirm that, since this Government came to power, giving to the 280 charities has already doubled? Does he expect that, with the payroll giving scheme, we shall see a further large increase of charitable giving to charities great and small? Will he also confirm that the administrative costs to employers of operating the schemes will be an expense allowable against tax?

Mr. Stewart: I welcome my hon. Friend's support for the payroll giving scheme. As he said, it has made a most encouraging start. I understand that information about new employers who will be taking part is coming in every day. The scheme will clearly involve a big increase in charitable giving, which has already doubled since the Government came to power in 1979. Already, tax relief of about £500 million is given by the Revenue in respect of charitable giving and we shall be only too pleased if the scheme greatly increases that. So far as I can comment on my hon. Friend's last point, I believe that to be the case, but if there is any problem I shall let him know.

Mr. Yeo: Does my hon. Friend agree that the vast majority of charities do extremely valuable work, which fully deserves the introduction of tax concessions such as the payroll giving scheme, but that organisations such as War on Want, which have used their funds to finance overtly political advertisements, are abusing not only their charitable status but the tax concessions that that status bestows?

Mr. Stewart: I deplore the abuse of charitable status of the sort that my hon. Friend has described. My hon. Friend the Member for Dorset, North (Mr. Baker) made heroic efforts to be in the Chamber to raise the matter earlier, and I know that it is one of widespread concern.

Mr. Raynsford: Does the Minister accept that it is an appalling indictment of the Government's policies that an increasing number of well-respected charities, such as Oxfam, along with other well-respected bodies such as the


Archbishop of Canterbury's commission on urban priority areas, have felt the need to criticise the Government's policies?

Mr. Stewart: Political behaviour by those involved in charitable work is always to be regretted. However, that does not invalidate the wish of all those in the House to support genuine charitable activities, and I hope that we will be able to continue to do so.

Mr. Thurnham: Does not the much increased level of charitable giving give the lie to those who claim that Britain is much less generous under this Government?

Mr. Stewart: The public have been increasingly generous to charitable causes since 1979. As I have said, charitable giving has about doubled. That is one of the beneficial consequences of the strong increase in standards of living and take-home pay, that have been enjoyed at all levels of the population since 1979.

Mr. Gould: Does the extent of charitable giving show that the people are more compassionate than the Government?

Mr. Stewart: In measures that we have been discussing and in many other ways; the Government are encouraging charitable giving. In this sense I am sure that the Government are entirely with the grain of the population.

Mr. Pawsey: Does my hon. Friend accept that the payroll giving scheme has been widely welcomed by many charities, and even by those which are evidently involved in political activities? Will my hon. Friend accept also, however, that the view is gaining ground that some of the giving is almost irrevocable and is difficult to cancel by employees, while some employers regard the scheme as being unduly bureaucratic? Will my hon. Friend take this opportunity to reassure charities, employers and employees that the scheme is easy to administer?

Mr. Stewart: I think that I can give the assurance that my hon. Friend seeks. We went to great lengths to try to ensure that the operation of the scheme would not be unduly onerous or bureaucratic for employers. That is why we insisted on having independent agencies. The excellent start that the scheme has made suggests that it cannot be too off-putting to employers, otherwise there would not be so many of them either already contracted or wishing so to be.

Value Added Tax

Mr. Dubs: asked the Chancellor of the Exchequer if he has any plans to extend the scope of value added tax.

Mr. Ian Stewart: No, Sir.

Mr. Dubs: Is it not becoming increasingly clear to the House and to the country that the Conservative party intends to fight the next general election on two manifestos — [Interruption.] — one that will be published openly, and a secret document in which there are to be proposals to increase the rate of VAT and to extend its scope to food and other products? Despite the fact that the Minister has answered no to my main question, the Prime Minister is not prepared to deny the assertion categorically? When will the Government be honest with the House and the people?

Mr. Stewart: We shall certainly fight the next election on two manifestos, ours and yours.

Mr. Speaker: Order. I shall be standing at the next general election, but I shall not have a manifesto.

Mr. Stewart: Our manifesto, Mr. Speaker, will be of great assistance to us, but I think that the Opposition parties' manifestos will be of even greater advantage to us.

Sir William Clark: Does my hon. Friend agree that if any of the Opposition's pledges are put into effect VAT will have to be increased to about 49p in the pound? Will my hon. Friend accept also that the collection costs of VAT, given the thresholds that apply on the turnover of a small business, which is roughtly twice the national average wage, are extremely high? Does he agree that the administrative burden on small businesses is onerous and, despite the EEC, would it not be a good idea to have a threshold of about £50,000 a year to assist small businesses?

Mr. Stewart: I note what my hon. Friend said about the threshold. I hope that he and my other hon. Friends will recognise that the measures we are introducing this year for cash accounting and annual accounting should greatly reduce the burden of income tax for small businesses.

Mr. Madden: Why have papers concerning the extension of VAT in Britain been withdrawn from the May meeting of Common Market Finance Ministers?

Mr. Stewart: The hon. Gentleman can ask whatever questions of the Commission he likes. The Government's policy is to reduce taxation; the Labour party's is to increase it. I am sorry that Labour Members have to resort to repeated smears to cover up the fact that they are the party of high taxation and we are the party which has reduced taxation.

Mr. Higgins: May I draw attention to the report of the Treasury Select Committee entitled "The Defence of VAT Zero-Rating" which contains clear evidence that the Government are determined to fight the case in the European Court, where the European Commission is seeking to extend the base of VAT? Is that not a very clear indication of the Government's views on the subject?

Mr. Stewart: I thank my right hon. Friend for making that clear to the House. The actions of the Government are well known and have the support of the House.

Mr. Hattersley: Does the Minister's answer mean that he is saying to the House what up to now the Prime Minister has not been prepared to say, that when the EEC recommends that Britain imposes VAT on food, fuel, children's clothing and new building, the Government will veto it?

Mr. Stewart: The Commission has not put forward such proposals. I mean what I say.

Exchange Rates

Mr. Pike: asked the Chancellor of the Exchequer if he will make a statement regarding the current level of exchange rates.

Mr. Lawson: The sterling index at noon today stood at 73·2.

Mr. Pike: Does the Chancellor realise how much damage the present high rate of the pound is doing to our manufacturing industries? Is it the Government's policy to keep an artificially high pound as their only means of controlling inflation?

Mr. Lawson: My impression, from a number of visits to manufacturing industries during the Easter recess and from reading very carefully the CBI survey of industrial trends for manufacturing industry, is that manufacturing industry is very well satisfied with the economic conditions at present. It is doing very well and I am very glad that it is. The one thing it dreads and fears is the possibility of a change of Government.
It is well known that the Labour party—this came out from the report to the Treasury Select Committee of the hon. Member for Great Grimsby (Mr. Mitchell), who is a member of the Opposition Front-bench — is in favour of putting up corporation tax to 52 per cent. and of having a dramatic devaluation of the pound, as a result of which inflation would rocket back to the 27 per cent. it was when a Labour Government were last in office. That would be the worst possible thing for manufacturing industry.

Mr. John Townend: Does my right hon. Friend agree that one of the main causes of the strength of sterling at present is the fact that the world financial markets are convinced that the Government will be re-elected? If there were to be a change in polls, with the possibility of a Labour Government or, even worse, a hung Parliament, is it not likely that there would be immediate pressure on sterling?

Mr. Lawson: It is true, as my hon. Friend has said, that if there were to be a change of Government it would be an economic disaster for Britain. The massive confidence that there is worldwide in the British economy, which is demonstrated by the strength of the pound in the foreign exchange market and in a number of other ways, would evaporate overnight. Fortunately, that nightmare will not turn into a reality.

Mr. Roy Jenkins: Can the Chancellor tell us whether he is now endeavouring to pursue the same exchange rate policy that he would if we were a full member of the EMS, and, if so, what is the advantage of doing that from outside?

Mr. Lawson: I am happy to answer the right hon. Gentleman's question. As he will be aware, six of the seven Finance Ministers of the Group of Seven met in Paris in February, when we agreed that, having achieved a substantial realignment of currencies following the Plaza meeting in September 1985, it was now right to try to keep the major exchange rates roughly stable. That is what we are seeking to do, and the British Government's policy is in line with that agreement, which was reaffirmed in Washington when we had a meeting of the G7 at the spring meeting of the IMF. That is not only part of an international agreement which would be beneficial worldwide, but it is in the interests of British industry that that should be maintained.

Mr. Forman: Is it not clear that the recent co-ordinated efforts by my right hon. Friend and other Finance Ministers of the Group of Six have had considerable success in bringing exchange rate stability in recent times through the agreements to which he referred, and has that not been excellent not only for output in Britain but for exports and import substitution?

Mr. Lawson: It has been, and, as I mentioned in the House yesterday in the course of the Finance Bill Committee stage debates—which the right hon. Member

for Birmingham, Sparkbrook (Mr. Hattersley) was, unfortunately, unable to attend because he was busy expelling a black activist from the Labour party, but it is good to have him back today — yesterday's Financial Times headed its leading article about the United Kingdom "An island of success". However, despite the indications that we are successful, there are problems in the rest of the world which have to be addressed and it is of first importance that there should be a successful outcome of the meeting today between President Reagan and Prime Minister Nakasone of Japan.

Budget

Mr. Jack Thompson: asked the Chancellor of the Exchequer what recent representations he has received about the Budget.

Mr. Lawson: The proposals in my Budget have been widely welcomed.

Mr. Thompson: Is the Chancellor aware that there has been little evidence of any improvement, or potential improvement, of the economy of the northern region as a result of the Budget proposals, that there is little evidence of the standard of living being improved there, and that, in fact, wage levels there are decreasing and the north-south divide is becoming even more evident since the Budget proposals? What is he prepared to do about it?

Mr. Lawson: I am glad to be able to inform the hon. Gentleman that he is misinformed. The most recent report from the Association of British Chambers of Commerce made a particular point of saying how big an improvement there has been in the prosperity of business and industry in the north of England. The whole point of the policies that we are pursuing is that they benefit the whole country.

Mr. Hayes: May I say to my right hon. Friend that the Budget has been welcomed by the people of Harlow because, thanks to the success of the Government's economic policies, Harlow is now a boom town with one of the lowest rates of unemployment in the south of England. Does he not find it ironic that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) had the nerve to come to my constituency and unveil a plan — after lunch — for a thousand new jobs to be created, the majority of which would have been created by the local authority, which is Labour-controlled and is crippling my local industry?

Mr. Lawson: I should like to take this opportunity to congratulate my hon. Frend on the manful efforts that he has made throughout the time that he has represented his constituency — which will ensure his continued representation of that constituency — against the activities of the local council, which have been consistently anti-business and anti-industry, as, indeed, have so many Labour councils up and down the country.

Building Societies (Interest-Only Loans)

Mr. Meadowcroft: asked the Chancellor of the Exchequer if he has any plans to permit derogation from the prohibition on building societies making interest-only loans.

Mr. Ian Stewart: The Building Societies Act gives those societies which have total commercial assets of over £100 million the power to lend money to individuals regardless of whether interest is charged on the loan.

Mr. Meadowcroft: Is the Minister aware that building societies believe that that helpful facility, which enables elderly people to liberate the capital in their own homes to make necessary repairs, has not been stopped by the Building Societies Act? Am I right in believing that that was never the Government's intention, and will the Minister make it clear that the facility is still widely available?

Mr. Stewart: Certainly the Building Societies Act does not stop building societies from making such loans. In fact, some societies have shown reluctance to conform with the requirements of the Consumer Credit Act 1974, but other lenders are coping without difficulty. I hope that building societies will not mislead borrowers of the kind that the hon. Gentleman describes by implying that such loans cannot be made.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Gerald Howarth: asked the Prime Minister if she will list her official engagements for Thursday 30 April.

The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Mr. Howarth: Does my right hon. Friend agree that in implementing promptly and in full the recommended 9·5 per cent. pay increase for nurses the Government have demonstrated their continuing commitment to improving the lot of the nursing profession, which has grown by 30,000 under the present Government? Does she also agree that there is no justification for the lightning teachers' strikes, such as those that are happening in my constituency at present, when the Government have awarded teachers a 25 per cent. average increase? That is far more than my constituents in manufacturing industry have been able to obtain.

The Prime Minister: I agree with my hon. Friend. Under the last Labour Government nurses' pay actually fell in terms of what it would purchase. Under the present Government it has gone up by 30 per cent. over and above the rate of inflation. As my hon. Friend says teachers have also done very well. Their pay will have increased by 27 per cent. over and above the rate of inflation. That shows that, under this Government, the growth that we have experienced has been put to very good use, not only in reducing taxation, but in bringing an enhanced standard of living to those who work in education and the social services.

Mr. Hattersley: On the basis of the information now available to her, will the Prime Minister admit that the Government's poll tax scheme, when combined with the so-called social security reform, will result in most families in this country on joint incomes of less than £21,000 a year being worse off than they are now, before the two schemes are implemented?

The Prime Minister: The right hon. Gentleman is aware of some of the tables that have been published. He will now have to wait until we see what net incomes are and how much Labour authorities in particular spend and charge in rates.

Mr. Hattersley: The Prime Minister is trying to deny a fact that she either knows to be true or ought to know to be true. Such conduct only confirms that the Government are ruthlessly determined not to tell the truth about the financial consequences of their re-election. I put the question to the Prime Minister again. It is a matter of fact on which work has been done and has been published. Is it not true that the majority of families with joint incomes of £21,000 or less will be worse off, regardless of whether their local authority is Labour, Conservative or anything else?

The Prime Minister: What people will have to pay in rates, or later in community charge, will depend upon some of the expenditure of local authorities. Now I understand why the Leader of the Opposition is not present. It is because Ealing has increased its rate by about 62 per cent.

Mr. Hattersley: The Prime Minister is devious and disingenuous at the same time. The whole country will understand that she is determined not to tell the truth about the financial consequences of the re-election of her Government. It is all part of the secret manifesto, and we shall expose the lot.

The Prime Minister: Perhaps the right hon. Gentleman would give a list of the high rates of Left-wing Labour-authorities and the catastrophe, not only of the high rating of ILEA, but of the appalling education.

Mrs. McCurley: Will my right hon. Friend confound the dismal Jimmies and agree with me that Scotland's economic performance is one of the success stories of this Government and that that success story will continue if a Conservative Government are re-elected?

The Prime Minister: Yes. The CBI survey relating to England, Wales and Scotland was very optimistic. It showed a level of optimism that we have not seen for a very long time. The reports of the top 50 companies in Scotland are excellent and unemployment is now falling.

Mr. Roy Jenkins: rose—[interruption]

Mr. Speaker: Order. I know that we may be getting close to an exciting time, but—Mr. Jenkins.

Mr. Jenkins: I recognise that the Prime Minister is bound to attach considerable importance to the views of the right hon. Member for Cardiff, South and Penarth (Sir J. Callaghan) on the subject of an MI5 inquiry, but will she none the less repudiate, on reflection, the extraordinary constitutional doctrine that she appeared to be propounding on Tuesday, namely, that the activities of a permanent Government agency, however monstrous they may be alleged to be, cannot be inquired into once there has been a change of Government?

The Prime Minister: I have nothing to add to the replies that I have given before and to what I said on Tuesday.

Mr. Skinner: Frit.

Mr. Speaker: Order. When I call the hon. Member for Bolsover (Mr. Skinner) he may say what he wants to say., but I have not yet called him.

Mr. Skinner: rose——

Mr. Speaker: Order. If the hon. Gentleman goes on like this, it will be a long time before I call him.

Mr. Maples: Will my right hon. Friend find time today to assure the House that the Government have no plans to raise the rate of VAT to the 25 per cent. that was reached under the last Labour Government?

The Prime Minister: Yes, and there are no plans to put VAT on food, either.

"World in Action"

Mr. Dalyell: asked the Prime Minister if she will acquire for the library of No. 10 Downing street a video recording of the Granada TV programme "World in Action" on the Law Officers' letter in the Westland affair, broadcast between 8 and 9 pm on Monday 30 March.

The Prime Minister: No, Sir.

Mr. Dalyell: May I ask the Prime Minister a question of fact which has not been put to her and which she has had no opportunity to answer? Is it, or is it not, true, as the programme suggests, that her Attorney-General summoned her Cabinet Secretary to confront him with the prospect of the New Scotland Yard police at No. 10 Downing street with the Department of Trade and Industry unless she agreed to an inquiry? Is the programme telling the truth, or is it not?

The Prime Minister: I have nothing to add to the many, many answers that I have given in statements and in reply to questions. I recognise that the hon. Gentleman will go on asking questions, but nothing can conceal the poverty of his policy.

Mr. Jackson: Further to my right hon. Friend's earlier answer——

Mr. Speaker: Order. This is a definitive question.

Mr. Foulkes: Is the Prime Minister aware that I am one of the 8 million viewers who heard that most respected reporter, James Naughtie, say—[Laughter.] He went to the same school as I did. James Naughtie confirmed that the centre of operations for releasing the Solicitor-General's letter was No. 10 Downing street. Can the Prime Minister tell us, therefore, why only selected parts of that letter were released? Was it because 10 Downing street considered Chris Moncrieff's shorthand not good enough to take down all of it?

The Prime Minister: The hon. Member's source did not go to the same school as I did, and I am not responsible for the press.

Engagements

Mr. Phillip Oppenheim: asked the Prime Minister if she will list her official engagements for Thursday 30 April.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Oppenheim: In view of Government policy on local government expenditure, will my right hon. Friend reflect on the fact that Derbyshire county council recently announced a programme of massive spending increases in

line with Labour pledges, but has suddently and without explanation withdrawn the programme that it had submitted? Can my right hon. Friend think of any possible reason or any event in the near future, that might have influenced the county council's decision?

The Prime Minister: I understand that Derbyshire is the highest-rated county in England. This is very damaging to business in an area that needs more jobs, and it is highly damaging to domestic ratepayers. The county council may have had that in mind in considering future matters and events which will come about in the next 15 or so months.

Mr. Dormand: In view of the overwhelming evidence that unemployment affects the health of those without a job, confirmed in yet another medical report issued last week, will the Prime Minister say whether she feels any personal responsibility for the ill-health, some of it very serious, of thousands of people in this country, arising directly from her economic policies?

The Prime Minister: Overall, health in the United Kingdom has been improving steadily. Life expectancy continues to rise. Infant mortality has fallen by one third since 1979. When we came to power in 1979, only £7¾ billion was spent on the National Health Service. This financial year we shall spend about £20 billion, which shows the priority that we have given to the health of the people.

Sir Anthony Kershaw: asked the Prime Minister if she will list her official engagements for Thursday 30 April.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Sir Anthony Kershaw: With regard to disarmament negotiations, is it not clear that this hopeful situation which we now have has come about because of my right hon. Friend's robust attitude and her refusal unilaterally to throw away our armaments before negotiations begin? Are there not hopeful attitudes in this negotiation which we are about to start?

The Prime Minister: Yes. I do not believe that the Soviet Union would be thinking of taking out the majority of her SS20s unless we had stood firm and deployed the cruise missiles and Pershings, something that the Labour, Liberal and Social Democratic parties voted against in this House when the decision was made. We would prefer the Soviet Union to agree to a global zero-zero on intermediate nuclear weapons. So far it has been unwilling to do that, but that is what we shall continue to ask for.

Mr. Allan Roberts: Before repeating her usual assertion that there is no connection between the 20 per cent. increase in youth unemployment in Merseyside since 1979 and the 40 per cent. increase in crime on Merseyside over which her Government has ministered since 1979, will the Prime Minister tell the House what she thinks about that well-known Victorian saying, oft repeated in Finchley, that the Devil finds work for idle hands?

The Prime Minister: I am sure that the hon. Gentleman has heard references several times to studies which show that there is no direct relationship between unemployment and crime. I am sure that he is very much aware that there are countries which have lower unemployment than we


have but which have higher rates of crime. I further refer him to an article in the Daily Mail on Wednesday 22 April by Dr. Alice Coleman, who said:
Historically, there is no evidence that joblessness is the major stimulus to crime.
She went on to say:
The runaway growth in offences began in the post-war period of full employment, and it was then often suggested that young delinquents were the spoilt products of affluence.
The hon. Gentleman is aware that the peak age for crime is 15. That is not related to unemployment.

Mr. Stokes: asked the Prime Minister if she will list her official engagements for Thursday 30 April.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Stokes: Is my right hon. Friend aware that many of my constituents in the west midlands are trade

unionists, many of whom are supporters of mine? Is she aware of the tremendous change in attitude that has taken place on the shop floor in recent months as a result of Government legislation, with such things as no strike agreements, the end of the closed shop and a generally much healthier and more realistic attitude among the workers? Is she aware that many of them are now capitalists, owning their houses, and shares too?

The Prime Minister: I agree with my hon. Friend. Our trade union reforms have helped to transform the climate for business. We now have the lowest number of days lost through disputes for 20 years. It is our reforms, and the way in which trade unions have responded, that are in part responsible for the excellent optimistic business survey that we have seen this week. I am delighted that under this Government far more trade unionists own their own homes and shares and have more savings than ever would have happened under Labour.

Business of the House

Mr. Peter Shore: May I ask the Leader of the House to state the business for next week?

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): Yes, Sir. The business for next week will be as follows:—
TUESDAY 5 MAY—Proceedings on the Chevening Estate Bill (Lords).
Remaining stages of the Landlord and Tenant (No. 2) Bill.
Motion on the Rate Support Grant Supplementary Report (England) (No. 1) 1987–88 (HC 330).
Followed by motion on the Welsh Rate Support Grant Supplementary Report 1987–88 (HC 325).
Motion relating to the Education (School Teachers' Pay and Conditions of Employment) Order.
WEDNESDAY 6 MAY—Debate on the security situation in Northern Ireland, on a motion for the Adjournment of the House.
Motion on the Police (Northern Ireland) Order.
Motion on the Industrial Relations (Northern Ireland) Order.
THURSDAY 7 MAY—Commons consideration of Lords amendments to the Banking Bill.
Remaining stages of the Fire Safety and Safety of Places of Sport Bill (Lords).
Motions on financial services orders. Details will be given in the Official Report.
The Chairman of Ways and Means has named opposed private business for consideration at Seven o'clock.
FRIDAY 8 MAY—Private Members' Bills.
MONDAY II MAY—Private Members' motions.
Debate on nuclear power and the Government's decision on the CEGB's application to construct the Sizewell "B" power station, on a Government motion.

[Debate on Thursday 7 May

1. Financial Services Act 1986 ( Delegation) Order 1987.
2. Financial Services (Transfer of functions Relating to Friendly Societies) Order ( Northern Ireland) 1987.
3. Financial Services (Transfer of functions Relating to Friendly Societies) Order 1987.]

Mr. Shore: The House will want to thank the right hon. Gentleman for honouring so promptly his promise to find time for a debate on security in Northern Ireland and the renewed Provisionals' campaign of murder and terror there. May I ask four questions? First, will the right hon. Gentleman consider again the timing of the debate on the Industrial Relations (Nothern Ireland) Order? It is an important and controversial measure which should not be smuggled away from the public gaze in a late night debate. Secondly, will he consider relocating on Tuesday the Education (School Teachers' Pay and Conditions of Employment) Order? This measure, too, should be debated in the light of day. We would like it to come on before the rate support grant motions. Thirdly, when will those rate support grant supplementary reports be tabled?
Finally, will the right hon. Gentleman note our continued frustration at not having a debate on the run-down of the Merchant Navy? Early-day motion 515 is now supported by no fewer than 270 right hon. and hon. Members on both sides of the House.
[That this House notes with anxiety the continuing rapid reduction in the size of the United-Kingdom-owned and registered merchant fleet; notes that this reduction is only partly offset by the increase in the number of United Kingdom-owned ships on overseas registers; expresses its concern at the adverse impact of these developments on the United Kingdom's and North Atlantic Treaty Organisation's defence capability and the United Kingdom economy, including shipbuilding, employment and the balance of payments account of the United Kingdom, notes the dearth of new investment in British-owned ships, whether new or secondhand, which alone can remedy the situation; and calls on Her Majesty's Government to take urgent steps in the forthcoming Budget to encourage such investment and to initiate action in the European Community to adopt domestic policies which will restore the profitability of ship owning and international policies to scrap surplus ships and unfair practices in shipbuilding and trading.]
Can the right hon. Gentleman think of any reason why we should not have a clear promise of a debate in the week beginning 11 or 18 May?

Mr. Biffen: What a provocative way for the right hon. Gentleman to end his questions. As to the hon. Gentleman's final point concerning a debate on the Merchant Navy, this matter was put to me last week and I indicated my views then. I shall take into account what the right hon. Gentleman has said, but for the moment I shall have to rest my reply where it was a week ago.
The right hon. Gentleman asked when the rate support grant reports would be tabled. I am told that they have gone down already today.
I take note of what the right hon. Gentleman said about the placing of the education order in the business for Tuesday. I cannot hold out hope that that matter can easily be rearranged, but, none the less, it can be considered through the usual channels.
I take note of what the right hon. Gentleman said about the Northern Ireland industrial relations order, which is scheduled to come on late at night. That is something that we can consider again through the usual channels.

Sir John Farr: Has my right hon. Friend had a chance to consider early-day motion 602 relating to the difficulties of British pensioners living in Canada?
[That this House urges Her Majesty's Government to provide retirement pensioners living in Canada with pension increases as and when they become due in Britain, with or without a social security agreement with Canada.]
As that early-day motion has been signed by more than 150 right hon. and hon. Members expressing their concern, is the House likely in the next few weeks to get some idea of the Government's attitude towards this matter?

Mr. Biffen: I thank my hon. Friend for the constructive way in which he put his point about early-day motion 602 concerning British pensioners living in Canada. I would have thought it might first be ventilated to see whether it could be debated within the context of the Finance Bill, and I shall make inquiries to that end.

Mr. David Alton: Will the Leader of the House say, before the Wednesday debate on Irish affairs, whether there will be a statement on the creation of the promised Anglo-Irish parliamentary tier? Will he also say whether he expects the Government, before dissolution, to complete their existing business?


Does he agree that the public would regard it as an incredible waste of parliamentary time and money if the Criminal Justice Bill, which has had 36 sittings, were to be lost? In those circumstances, will the Leader of the House say whether he has come round to the idea of fixed-term Parliaments?

Mr. Biffen: I note the hon. Gentleman's second point. I am sure that the whole House noted the views that he expressed. I think that any comment upon them could be construed as revealing more than it was able to conceal, so I shall leave the matter there. As to the hon. Gentleman's first point, I can confidently say that there will not be a statement about the possibility of an Anglo-Irish parliamentary tier ahead of the debate that we plan for Wednesday.

Sir Edward du Cann: Has my right hon. Friend observed that the Secretary of State for Defence and the Secretary-General of NATO have now added their powerful voices to the anxiety that has been expressed by an overwhelming number of Members in the motion on the Merchant Navy, to which the right hon. Member for Bethnal Green and Stepney (Mr. Shore) referred? In those circumstances, does my right hon. Friend agree that the suggestion made, not for the first time by the right hon. Gentleman, about the good sense of having a debate on the Merchant Navy should be accepted by the Government, in the general national, economic and defence interest?

Mr. Biffen: I very much understand and sympathise with the points made by my right hon. Friend, but he also knows that I am, as it were, the guardian of the agenda at a time of the year when there is great pressure for committed Government business. That is a fact of which I have to take account, but I shall bear in mind what my right hon. Friend said.

Mr. Merlyn Rees: Will the Leader of the House remind the Home Secretary and the Foreign Secretary that the American Department of Justice and the American State Department, jointly, have received information from a unit, which I think works for the Department of Justice, called the Anti-Nazi Tracking Unit, which has made allegations, as a result of which the President of Austria, Dr. Waldheim, will not be allowed to go to the United States unless he goes there as the President of Austria? This information is important. It is available in the United States. It is relevant to activities in this country. Will the right hon. Gentleman ask for that information to be provided to us so that we can make our judgment on it?

Mr. Biffen: When the right hon. Gentleman asked for the information to be made available so that we can make our judgment, he rightly underlined the fact that we are talking about allegations and not about proof. Of course, I shall relay the right hon. Gentleman's request to my right hon. Friend the Home Secretary.

Mr. Robert Rhodes James: Following the question asked by the right hon. Member for Morley and Leeds, South (Mr. Rees) concerning President Waldheim, is my right hon. Friend aware that I have seen the documents relating to this case and that there is a difference between allegations that have never been tried in court — there is an interesting story why they were never brought to court — and proof, but it is

incontestible that President Waldheim has lied consistently about his war record and that he has proved himself by these lies to be totally unfit to hold public office? Although that is a matter for the people of Austria, surely the Government of this country can recognise the outrage that has been felt, and surely we should follow the lead given by others.

Mr. Biffen: My hon. Friend, who clearly speaks with known experience and authority on these matters, claims that there are certain self-evident situations. I say to him in all friendliness that these are matters for individual judgment. I am being asked to find out whether there can be a ministerial responsibility for making certain documents available, and I have said that I shall look into that.

Mr. Lewis Carter-Jones: Will the Leader of the House ask the Secretary of State for Trade and Industry to make a statement on the A330 and A340 Airbus project? Is he aware that more than 400 A320s have been sold, but we guess that 200 sales were lost because of delays? It looks as though we have lost some sales of A330 and A340 aircraft including sales to Alitalia. Will the right hon. Gentleman please urgently consider this matter?

Mr. Biffen: I shall certainly pass those points on to my right hon. Friend the Secretary of State for Trade and Industry.

Sir John Biggs-Davison: Has my right hon. Friend noted the progress made in another place with the Irish Sailors and Soldiers Land Trust Bill, which in its present form has been welcomed by the Royal British Legion? On its arrival in this place, will the Government seek to expedite a measure which should not take too much time but which would bring comfort to former members of Her Majesty's forces and their dependants living across the Irish sea?

Mr. Biffen: I am sure that once the legislation has completed its stages in another place and comes to the House of Commons the usual channels will do their utmost to see that it is dispatched with appropriate regard for the susceptibilities of the House.

Mr. Stephen Ross: Can the Leader of the House tell us whether, and when, he expects there to be a debate on the Control of Pollution (Landed Ships Waste) Regulations 1987, which came into force on 6 April, which were laid before Parliament on 16 March and which were prayed against by the Leader of the Opposition, when I gather that there were six days remaining? Will the regulations be debated? What will happen if Parliament is dissolved? Will the regulations be in force?
May I also press the right hon. Gentleman — [Interruption.] This is an important matter in my pocket of the country. May I press the right hon. Gentleman on the issue of the parliamentary tier of the Anglo-Irish Agreement? My hon. Friend the Member for Liverpool, Mossley Hill (Mr. Alton) was dead right about that. It is an initiative that Parliament should take on board.

Mr. Biffen: I shall look into the hon. Gentleman's first request. I am afraid that I cannot give him an authoritative answer, but I shall see that he is given an answer.
As to the hon. Gentleman's second point, I do not think that I can reasonably add to what I have already said. I


know that no statement will be made, but that does not mean that, subject to the views of the Chair, reference may not at least be made to it in the debates that will follow.

Mr. Teddy Taylor: Has the Leader of the House, as a member of the Government, read the astonishing written answer issued late last night, but not yet published in Hansard, by the Minister of Transport rescinding the letter of instruction to British Rail that it should not make advance payments to the Channel tunnel project? In view of the implications of this for that project and its viability, and also in view of the implications for the general public travelling on British Rail having to pay a virtual levy to give advance payments for the construction of a tunnel, may we at least have a statement, if not a debate, on the implications of this astonishing change of policy, which appears to throw aside the assurances given in the past about public or quasi-public funding of the tunnel?

Mr. Biffen: I take note of the point that my hon. Friend has raised. Clearly it is one that commands much interest in the House. I shall see that the point is put to my right hon. Friend the Secretary of State for Transport.

Mr. Greville Janner: Reverting to the matter of President Waldheim, it is certainly the responsibility of the Home Secretary whether this very evil man is allowed into the United Kingdom——

Mr. Speaker: Order. I must remind the hon. and learned Gentleman and the whole House that we should not cast reflections upon the presidents of countries with which we have friendly relations.

Mr. Janner: It is the responsibility of the Home Secretary to decide whether President Waldheim or any other such person should be allowed into the United Kingdom. May we have a statement on that?
Will there be time, before the House rises, for a debate on the shortage of resources for hospitals in Leicestershire? This is a matter upon which hon. Members on both sides of the House were agreed, and I discovered that at the Groby road heart hospital people are waiting six months for open-heart surgery because of the lack of one doctor, one anaesthetist and two beds. [Interruption.] Conservative Members find this a laughing matter, but it is a matter of life or death for my constituents.

Mr. Biffen: With regard to the first point raised by the hon. and learned Gentleman, I have already said that I shall refer the matter to my right hon. Friend the Home Secretary. In so doing, I shall refer him to the points that the hon. and learned Gentleman has raised.
As to the second point, the hon. and learned Gentleman will know that the matter was debated in the recent Adjournment debate. My hon. Friends then put the case for health care in Leicestershire all the more effectively because it was put that much more moderately.

Sir Kenneth Lewis: My hon. Friend is aware that the House has spent quite a lot of time and travail putting through the Criminal Justice Bill, which is at present proceeding in another place. Can he assure me that the Government will do everything that they can to get the Bill—I am prepared to give up some of my extended summer holiday, which I may not get for another 30 years — through in this Parliament? It is

important that some deals be done in the House of Lords so that, even if it means that the election is delayed for a week, we get that Bill through and thus save a lot of bother in the next Parliament.

Mr. Biffen: I note the fullhearted concern of my hon. Friend that the Criminal Justice Bill should receive Royal Assent, and I know that because of all the hard work that has gone into the drafting and debating of the Bill it is a view that must be echoed throughout this Chamber.

Mr. D. N. Campbell-Savours: Is it not extraordinary—I am sensitive to the legal position, Mr. Speaker—that, while the Attorney-General was willing to bring actions against the London Daily News, The London Evening Standard and The Independent newspapers, he failed to bring an action against ITN news, which repeated all the allegations in The Independent during the course of three bulletins on Monday, at 1 o'clock, 6 o'clock and 10 o'clock? Will the Leader of the House deny that Ministers met and, with the Attorney-General, took a decision that they would bring no action against ITN news because they were worried that they would have to stand the criticism of the British people that this was an attempt to censor ITN news?

Mr. Biffen: I shall draw to the attention of my right hon. and learned Friend the Attorney-General the clear dissatisfaction that the hon. Gentleman entertains about his conduct.

Mr. Derek Spencer: Can my right hon. Friend tell us when we might have a debate on the workings of the Child Care Act 1980? Is he aware of the Alice in Wonderland situation that obtains in Leicestershire over the workings of the Act, where, in 1983, as a result of the Lib-Lab pact, a secure house for unruly children was closed? Since then the local authority has laid down its own criteria, which, incredibly, means that the suspicion that somebody is likely to abscond is insufficient evidence for that person to be incarcerated? This has given rise to great concern by the courts and the police and has lead to unruly behaviour in other children's homes. May we have an early debate on this intolerable state of affairs?

Mr. Biffen: I understand the point that my hon. and learned Friend raises and the considerable local significance and topicality that it possesses. In the nearest future there is no prospect of such a debate in Government time, but I wish him every success in whatever other route he chooses to try to have the matter raised.

Mr. Andrew Faulds: Since it has now become clear that the Prime Minister allowed the use of the Lakenheath base for the F111s to bomb Libya with the excuse that precision bombing was needed, was she aware that it was President Reagan's intention to kill Colonel Gaddafi? Since it has also now become clear from the evidence of the West German police that the bombing of the Berlin disco was not done by Libyan agents, when can we debate the Prime Minister's massive misjudgments before she leaves office?

Mr. Biffen: I say at once that I do not accept as a premise practically anything that the hon. Gentleman has said. As he requires a debate before the Prime Minister leaves office, that gives us plenty of time to consider his request.

Mr. Patrick McLoughlin: Will my right hon. Friend please advise me what would be the best course of action if I explain to him that recently in my constituency a leaflet circulated by the alliance stated that the alliance team was pressing the Minister of Transport for urgent correspondence on the Ashbourne bypass? I asked a question of the Secretay of State for Transport some few weeks ago, in reply to which he said that six weeks after the alliance has put out this leaflet no representations had been made. It is more serious than that, because I challenged——

Mr. Speaker: Order. This is not the object of business questions. The hon. Member must ask for a statement, if not a debate.

Mr. McLoughlin: Mr. Speaker, I am coming to the important part. I got in touch with the Department of Transport about this very serious item and was told that no correspondence had been received. However, Mr. Speaker, after I wrote——

Mr. Speaker: Order. That has nothing to do with me. The hon. Gentleman must address his question to the Leader of the House and make it relevant to next week's business.

Mr. McLoughlin: I should like the Leader of the House to investigate my claim that I asked the Minister about this and that he responded that no correspondence had been received. After I had raised the item locally, a letter arrived at the Department of Transport dated 13 April, but postmarked 28 April. Will the Leader of the House investigate how this letter got lost in the Department for two weeks?

Mr. Biffen: My hon. Friend has asked me a question that implies a responsibility that I am sure I do not possess. There is only a modest ministerial responsibility on any point in this matter. My hon. Friend has to remember that when confronted by this unseemly and unwholesome performance of his political opponents in West Derbyshire he played the dirtiest trick of all time when he won the by-election, when they were so confident that they would win it.

Mr. Tam Dalyell: In view of the no less unwholesome performance of the Prime Minister over the question of the Law Officers' letter on Westland, and in the light of the fact that question 2 to the Prime Minister has been on the Order Paper for over three weeks and that I had the courtesy on 12 April to set out a whole range of questions that might be asked, if the Prime Minister will not answer, will the Leader of the House ask the Attorney-General to come and tell us whether it is true that he confronted the Cabinet Secretary, Sir Robert Armstrong, saying that he would bring the police from New Scotland Yard to No. 10 if the Prime Minister did not agree to an inquiry? It is a question of fact, nothing else. It is simply a factual question that has been on the Order Paper for more than three weeks. In view of the seriousness of the television programme, does that not deserve an answer?
Will the Leader of the House go and commune, or whatever he does, with the Lord Privy Seal, and ask the Secretary of State for Scotland to answer the question that I put on Monday, which the Lord Privy Seal said he would refer to the Scottish Office, about his knowledge of the raid on the BBC in Glasgow?

Mr. Biffen: On the first point, the hon. Gentleman argues that he has tabled a question and is not entirely happy with the answer. That is hardly surprising, as he puts down a great many questions. Even those of us who are far less devoted to Question Time frequently have the experience of not being entirely satisfied with an answer. As a consequence of that, the hon. Gentleman asks whether I will see that a question is put to my right hon. and learned Friend the Attorney-General. The hon. Gentleman has made the request, and I shall see what can be done. However, it is perfectly within the hon. Gentleman's competence—he is not exactly a novice in these matters — to table a question to the Attorney-General.
On the hon. Gentleman's second point concerning the Scottish Office and the answer that I gave on Monday, I shall look into the matter.

Mr. Roger Sims: Was my right hon. Friend present earlier when the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) did not make the slightest effort to refute, either in whole or in part, the figure of £36 billion as the cost of implementing Labour party pledges? Does he not think that the time is fast becoming ripe for a debate on the implications to the individual ordinary taxpayer of that figure? Would not such a debate also provide an opportunity for the Liberal party and the Social Democratic party to tell us what their policies are and what the cost of them would be?

Mr. Biffen: My hon. Friend makes a valid political point. My only regret is-that I have to be rather sparing in my response because of the problem of Government time. However, there are some hours ahead of us today devoted to the Finance Bill. I hope that my hon. Friend will be able to make some of those points at greater length during that time.

Mrs. Ann Clwyd: I am sure that everybody in the House is concerned about the terrible pictures coming out of Mozambique showing men, women and children dying in their thousands. There ought to be a statement on the situation in Mozambique, including what further assistance can he given by the Government, particularly towards implementing sanctions against South Africa to stop it attacking its neighbours in that terrible way.

Mr. Biffen: The hon. Lady has made a request that there should be a statement on what is undoubtedly a great human tragedy in Mozambique, and I shall convey that request to my right hon. and learned Friend the Secretary of State for Foreign and Commonwealth Affairs.

Mr. Michael McNair-Wilson: Can my right hon. Friend say whether he has received any request from the right hon. Member for Cardiff, South and Penarth (Sir J. Callaghan) to make a statement about his answer in 1977 relating to the allegations in the Peter Wright book?

Mr. Biffen: I have had no communication with the right hon. Gentleman.

Mr. David Winnick: Does the Leader of the House not recognise that there is a great deal of pressure and a wish, certainly from Opposition Members, that a statement should be made on the allegation that up to 30 MI5 officers were involved in subversion and treachery? If a Government profess themselves to be in


favour of the rule of law and parliamentary democracy, how can they take such a dismissive attitude about such allegations? Will there be a statement next week?
On the matter regarding Waldheim, has the Leader of the House seen my early-day motion 921—
[That this House welcomes the decision by the United States and Canadian authorities that Kurt Waldheim will not be permitted to visit privately their countries; trusts that the same decision will be reached by the United Kingdom Government; believes that all those held responsible for participating in Nazi crimes against humanity should continue to be brought to justice; and expresses its sorrow that someone with Waldheim's war-time record should actually he President of Austria.]
—regarding this scoundrel?

Mr. Speaker: Order. The hon. Gentleman must withdraw that word. It is not in accordance with our conventions. He took the right course yesterday in putting down a motion. That is the right way of dealing with such matters.

Mr. Winnick: I always obey your wishes, Mr. Speaker. I believe that the man is a scoundrel. If I am not allowed to say so in the House because of the rules, obviously I shall withdraw the word, but only in so far as the Chamber is concerned.

Mr. Biffen: As to the first point that the hon. Gentleman raised, the Government's position has been made clear, not least by my right hon. Friend the Prime Minister. I have nothing further to say. As to the second point, I cannot helpfully add to what I have said to other hon. Members on the matter of Mr. Waldheim and the newspaper reports. I shall refer the matter to my right hon. Friend the Home Secretary.

Mr. David Harris: Despite the entreaties of my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) that the House should be kept sitting well into the summer to deal with the Criminal Justice Bill, does my right hon. Friend agree with me and many others that this Parliament has virtually reached the end of its natural life? In view of the abysmal attendance last night and, no doubt, tonight on the Finance Bill, and the early rising of the House, will he convey to our right hon. Friend the Prime Minister the feeling of hon. Members on both sides that the time has come to go to the country and secure a third term for the Government?

Mr. Biffen: That question does not helpfully require a reply. I have heard what my hon. Friend has said.

Mr. Dennis Skinner: I am not so sure that the Leader of the House is anxious to have an early election, in view of what was stated in one of the newspapers recently, that if the right hon. Member for Finchley (Mrs. Thatcher) got back into power one of the first people to get the chop will be the Leader of the House, apparently because some time ago he made a statement about a balanced programme.

Mr. Speaker: Order. Again I say that this is not the purpose of business questions. The purpose is to deal with business for next week.

Mr. Skinner: It was just a preamble to what I am about to say, Mr. Speaker.
Picking up the debate as it went along, will the Leader of the House consider the possibility of having a debate, at this fairly late stage, on the MI5 destabilisation allegations of the Wilson and Callaghan Governments? Perhaps it will provide a wonderful opportunity for my right hon. Friend the Prime Minister at the time, the hon. Member for Cardiff, South and Penarth (Sir J. Callaghan) to come to the Chamber and take part in the debate and tell us who was protected and why.

Mr. Biffen: First, in respect of the preamble to the hon. Gentleman's remarks, I am grateful for the character reference. As to the second and more substantial point that he made, I cannot do more than refer the hon. Gentleman to what I said to the hon. Member for Walsall, North (Mr. Winnick).

Mr. Eric Forth (Mid-Worcestershire): In view of events yesterday in Walworth road and the almost certainty that, after any election, some hon. Members will seek to represent sections of the community rather than the community and constituents as a whole, will my right hon. Friend arrange for a debate next week to discuss the procedures of the House in the future, and particularly how individual Opposition Members can be protected against their own leader, in case what happened at Walworth road yesterday is repeated?

Mr. Biffen: The relationship between Walworth road and the procedures of the House is absolutely fascinating. I do not wish to make any comment that would add to the difficulties. Therefore, my hon. Friend should release us all from the difficulties by rendering his advice direct to the Procedure Committee.

Several Hon. Members: rose——

Mr. Speaker: Order. It might be good for the House if we get on to the Finance Bill quite soon. I shall call hon. Members who have been rising. Questions should relate to the business for next week.

Mr. Andy Stewart: Will my right hon. Friend find time next week for a debate in view of the distorted statements made last Saturday at the Nottinghamshire Federation of British Coal Tenants conference by the hon. Member for Bassetlaw (Mr. Ashton) against Conservative Members, British Coal and the Government?

Mr. Biffen: It is an extremely good subject. With all my heart I wish that I could offer Government time next week, but I fear that pressures are such that I cannot do so, I shall certainly bear it in mind for the future.

Mr. Tony Marlow: As part of the Labour party's smear-a-day campaign, apparently the right hon. Member for Chesterfield (Mr. Benn) is putting it about that Airey Neave plotted with MI5 to bump him off. The right hon. Gentleman is useful to us. Is the right hon. Gentleman not of more use to us alive than dead?

Mr. Biffen: I was not aware of such exotic developments in the national debate. Therefore, I do not think that I can make an adequate reply, except that I suppose that if I hang around I shall hear much more of the same.

Mr. Edward Leigh: May we have a debate on the Abortion Act 1967, which celebrates its 19th birthday this week, under which 2.5


million innocents have lost their lives? In particular, may we have a debate on clause 1 of the Infant Life (Preservation) Act 1929, which makes it an offence to kill any child who is capable of being born alive? In the light of recent research, which shows that about 70 per cent. of foetuses of 22 weeks gestational age are survivors, the whole country would welcome such a debate.

Mr. Peter Bruinvels: Support my Bill.

Mr. Biffen: I note what my hon. Friend said. I note that my hon. Friend the Member for Leicester, East (Mr. Bruinvels), said that he has a Bill that will aid in this matter. The topic is possibly more appropriate for private Members' initiatives than those of the Government. In any case, Government time in the near future is simply not available. I shall, as ever, look with benevolence upon what my hon. Friend requires.

Mr. Bruinvels: Will my right hon. Friend consider having a debate on the report by Sir Gordon Downey, the Auditor-General, on the £87 million overpayment of benefit? Does he agree that it is totally unacceptable at this time for so much money to be paid out? Perhaps it might be understandable when many civil servants are putting their own financial interests ahead of national interests by going on strike and taking industrial action, particularly members of the Civil and Public Services Association and the Society of Civil and Public Servants? Is he aware that my constituents in Leicester, East will suffer on 11 May unless the strike is ended quickly? People in need of important benefit will certainly not get it because, unfortunately, civil servants care more about their own money than about my constituents.

Mr. Biffen: I note what my hon. Friend has said. I was not absolutely clear, but I got the impression that he referred to evidence contained in the Public Accounts Committee report. I assure him that plans are afoot to have the Public Accounts Committee's report debated in the reasonably near future.

Mr. William Cash: Is my right hon. Friend aware that the United States Patent Office has recently

authorised the patenting of animal genetic engineering? Is he further aware that an official within that department acknowledged that it would he likely to, or could, lead to human genetic engineering? It represents a severe danger to the future of mankind of a nature equivalent to the nuclear debate that has been going on for the past 30 years. Will my right hon. Friend be good enough to ask the appropriate Minister to authorise a debate on the matter to ensure that we do not go down this line, particularly as during the last week the European Patent Office has received two animal genetic engineering patent applications, which is an inevitable first step towards moving the goalposts down such an extremely dangerous and slippery path?

Mr. Biffen: My hon. Friend, in a compelling way, requests a debate that would widen a little further the request that I have already had for debates on the topic of abortion and like matters. I have explained why I do not think that such matters are particularly suitable for Government initiatives. I shall bear in mind what he had to say. I recognise that there is a real desire in the House that such matters should be debated, particularly ahead of any legislation that might eventually be brought before it.
Later——

Mr. Frank Haynes: On a point of order, Mr. Speaker. A short time ago the hon. Member for Sherwood (Mr. Stewart) made a comment to the Leader of the House. His comment would not stand up in a court of law. The hon. Member was not even there. I was there and I am defending my hon. Friend the Member for Bassetlaw (Mr. Ashton). The hon. Member for Sherwood made comments, but he was not even there. It was pure supposition on his part. [Interruption.]

Mr. Speaker: Order. I think that both hon. Members have now had fair shares. It is a pity that the hon. Member for Ashfield (Mr. Haynes) did not raise that point with the Leader of the House. I am afraid that I was not there either.

Members (Medical Checks)

Mrs. Ann Clwyd: On a point of order, Mr. Speaker. As you know, an exhibition has been taking place this week in the Upper Waiting Hall and it has been organised by the Family Heart Association. It has been providing a useful service checking Members' cholesterol levels, some of which have worried some hon. Members. I am sure that you will agree that, while that proves the point, made several times in the House, that there ought to be more frequent mobile screening of this kind available in the House, not only for Members but for others who work in the House, the results obtained ought to be confidential medical information.
I have some evidence that a Lobby correspondent has been compiling a list of Members' cholesterol levels. I do not know what he intends to do with that list but it is a serious matter, particularly as Lobby correspondents are able to move freely about the House. That Lobby correspondents should be standing by the screen and checking Members' cholestoral levels as an hon. Member is sitting in a chair waiting for the result is extremely undesirable. Will you inquire into this matter Mr. Speaker?
The Lobby correspondent concerned is a Mr. Mike Steele and I saw him with a list. The hon. Member for Leicestershire, North-West (Mr. Ashby) spoke to him yesterday about the list and asked him what use he meant to make of it. That kind of information ought to be private to hon. Members and ought not to be used now or in the future by Lobby correspondents. There is a possibility that the information has already been used, but I ask you to inquire into this matter and to report to the House.

Mr. Speaker: I thank the hon. Lady for raising that matter. I shall certainly look into it.

Parliamentary Conduct

Mr. Frank Cook: On a point of order, Mr. Speaker. My concern is for the honour of hon. Members and for the way in which our business is conducted. For that reason I turn to you, Mr. Speaker, as the protector and custodian in such matters. I should like to raise the matter of an occurrence during business questions.
You will know, Mr. Speaker, that the microphones are switched on in specific locations, depending on the hon. Member who is on his feet. Within the immediate location of a live microphone an hon. Member from a sedentary position used the first name of a very prominent and internationally known member of a party of which I am not a member, and was heard to attribute to that name the epithet "mass murderer". Is such a practice in order? That remark might be broadcast on newscasts later today. If that is in order, can you tell me, Mr. Speaker, whether I am allowed to use the first name of the Member who made the allegation and call him a liar?

Mr. Speaker: I do not know whether the hon. Member for Stockton, North (Mr. Cook) is referring to the episode about the President of Austria.

Mr. Cook: rose——

Mr. Speaker: No. If it was a reference to an hon. Member of this House, it was totally out of order. These microphones are tuned into my Chair. I hear clearly the hon. Member who has been called to speak, because that is the object of the microphones. I frequently do not hear things that are said at the far end of the Chamber, and perhaps that is just as well. I certainly deprecate any epithet of that kind from any hon. Member.

Mr. Cook: Further to that point of order, Mr. Speaker. Would it be right for me to ask you, as custodian and protector of the honour of the House, to ask the hon. Member to withdraw that statement? [Interruption.]

Mr. Speaker: Order. I did not hear it, so I cannot ask him to withdraw it.

Mr. Cook: It was the hon. Member for Tatton (Mr. Hamilton).

Mr. Speaker: Order. I can hardly believe that an hon. Member would use a phrase of that kind.

STATUTORY INSTRUMENTS &c.

Ordered,
That the Teesside Development Corporation (Area and Constitution) Order 1987 be referred to a Standing Committee on Statutory Instruments, &amp;c. — [Mr. Lightbown.]

Orders of the Day — Finance Bill

(Clauses 11, 18, 20 to 23, 33, 45, 147 and 160 and Schedule 4)

Considered in Committee. [Progress 29 April.]

[MR. ERNEST ARMSTRONG in the Chair]

Clause 11

ACCOUNTING FOR AND PAYMENT OF TAX

Question proposed, That the clause stand part of the Bill.

The Minister of State, Treasury (Mr. Peter Brooke): The story that leads to this clause begins most directly with the VAT small business review that was published on 24 October last year. The proposals in the consultation document followed a wide-ranging view of the VAT policy towards small businesses to see whether special arrangements could be provided for them. The review was announced in the White Paper entitled "Building Businesses … not Barriers".
A major concern expressed by small businesses and often expressed to me directly in letters from hon. Members enclosing correspondence from constituents, is that they often have to pay VAT to Customs and Excise before they are paid by their customers, who frequently take long periods of credit. A further concern was that they were obliged to complete and pay four VAT returns a year and would prefer a system more akin to that for other bills, such as the rates, with regular advance payments.
The changes proposed will overcome these problems by helping with cash flow and budgeting, and thus ease the VAT burden on small businesses. The consultation exercise that the Government asked Customs and Excise to conduct last October was wide-ranging. Not only were responses received to the consultative document from 192 trade bodies and individuals, but the views of small business were canvassed directly. A question and answer leaflet was sent to 5,000 randomly selected small businesses and 1,256 were completed and returned. The consultative document and leaflet contained a package of proposals targeted specifically at assisting the small business and included a scheme for cash accounting and a scheme for annual accounting.
The overwhelming majority of respondents welcomed the small business review and, in particular, the proposals for these schemes. There were, and this is the purpose of consultation, suggestions for change to the proposals for both schemes. The most important of these was about the higher limit to allow more businesses to use the scheme and that in itself was a commendation for the principle of the schemes. Other suggestions concerned the detailed operation of the schemes. All these suggestions were carefully considered by the Government and many have been accepted in whole or in part. The result was the

Chancellor's announcement in his Budget statement about the introduction of schemes for cash accounting and annual accounting.
Clause 11 provides the enabling provision for regulations to be made covering the cash accounting and annual accounting schemes. The scheme for cash accounting will give a small business the option of accounting for VAT when it receives payment rather than when it issues a tax invoice. This will give automatic bad debt relief to businesses using the scheme. Similarly, it will be able to reclaim the VAT that it has incurred on its purchases only when it make payment rather than when it receives a tax invoice. Under annual accounting a small business will have the further option of making one VAT return a year rather than four as at present. Businesses choosing to use that option would make nine payments by direct debit on account and a tenth balancing payment would be made with the annual return.
This enabling clause tells the House little about how the scheme will work, and the conditions for their use. Those details will be contained in the regulations. As I said on 8 April in a reply to my hon. Friend the Member for Berkshire, East (Mr. MacKay), the regulations for cash accounting will not be made until the necessary Community derogation has been approved. A draft of -.he proposed regulations has been placed in the Library and copies have been sent to trade bodies. The regulations for annual accounting will not be made until next spring and again a draft will be sent to trade bodies before they are made.
As the Chancellor announced in his Budget statement, the schemes will be open to businesses with an annual turnover not exceeding £250,000. That represents a considerable advance on the £100,000 which was originally proposed in the consultative document last October, and covers over half of all the businesses that are registered for VAT. Once admitted to use either scheme, a business will not normally be required to leave until its turnover has exceeded the limit by 25 per cent. to a figure of £312,500 in a year.
Cash accounting will be available to businesses registering for VAT, as well as for existing registered businesses, but for annual accounting a business must have been registered for at least one year. The regulations will also detail the other conditions to be satisfied for Customs and Excise to give approval to use the schemes and the circumstances in which use of the schemes may be withdrawn. Refusal to use a scheme, or the withdrawal of an approval, would be appealable to the independent value added tax tribunal. The regulations will state the procedures to be used by a business on entry, while using, and on ceasing to use, a scheme, and will be framed to take account, in whole or part, of many of the representations received. Those for cash accounting especially meet the points that have been made about leaving the scheme and receipted invoices.
Subject to the necessary derogation from the Community, cash accounting will start on 1 October 1987. Annual accounting will start in the summer of 1988 when the necessary computer reprogramming has been completed. Broad details of the scheme will be available from local VAT offices at the end of May. Further information will be contained in a leaflet that will be sent to all businesses with the July, August and September VAT returns.
A business wishing to receive the public notice, which will give the conditions for joining and using the scheme, will be able to return a tear-off slip to its local VAT office. A business wishing to join, having read the public notice, should complete and return to the VAT office the application form which will be part of the notice. Provided that the conditions are satisfied, approval will be given to use cash accounting from the beginning of the business's net VAT accounting period, on or after 1 October.

Mr. D. N. Campbell-Savours: I welcome the concept behind this scheme, for which I have argued for many years. However, will the Minister explain to the House why the current system was built in the way it was? What was the justification for the existing system? Historically what arguments have been deployed against the arrangements that he now seeks to introduce?

Mr. Brooke: That question goes back into history a little. The legislation was introduced originally in 1973. At that stage neither the hon. Gentleman nor myself were Members of the House. In those days I was not in the habit of reading Hansard to see what was happening in a body of which I was not a Member. However, I am grateful for the hon. Gentleman's welcome for the legislation, in which he is joined by many other people in the country who feel that it is a good development.
Although the scheme for annual accounting is not being introduced until the summer of 1988, information will be available on a broadly similar time scale. An information sheet will be available in local VAT offices at the end of May, and a public notice, including a tear-off application form, containing the conditions for using the scheme, will be available after Royal Assent. The cost of cash accounting is a once-and-for-all loss of about £100 million, with on-going annual costs of £10 million. The revenue cost of annual accounting is broadly neutral.
I should report to the Committee on the Community derogation, about which my right hon. Friend the Chancellor spoke in the Budget debate. For cash accounting, the Government acted urgently on Budget day by lodging with the Commission of the Community a formal request for the necessary legal derogation, with the proposed operative date of 1 October 1987. There has been no suggestion that the Commission sees any significant difficulties with the proposal and the Government are optimistic that it will take the next step of formally notifying other member states shortly. If, within two months of that notification, neither the Commission nor any member state requests that the matter be raised by the Council, the approval will have been obtained.
In summary, there are rare occasions in ministerial life when one can lay proposals before the Committee which enjoy widespread and even possibly universal approval.

Mr. Robert Sheldon: Now that the Minister has dealt with the details, perhaps I can ask him just one detailed question that he might care to answer. It concerns those people who opt to take cash accounting and, for some reason, have one year with a very high turnover, which is different from their normal expectations. Would those people automatically go out of the scheme, or would there be some discretion? The Minister seemed to suggest the possibility of some discretion.

Mr. Brooke: It may help the right hon. Gentleman if I state what is contained in the regulations in that regard. The draft regulations have been placed in the Library. The regulations state:
(2) A person admitted to the scheme shall remain in it for a minimum of two years, unless:

(a) at the end of any quarter or prescribed accounting period his turnover in the year then ended has exceeded by 25 per cent. the figure of £250,000 and in the year then beginning is expected to exceed the figure of £250,000, in which case he shall notify the Commissioners and leave at the anniversary of his joining; or
(b) if at any time there is reason to believe that his turnover in the year ahead will exceed by 25 per cent. the figure of £250,000 in which case he shall notify the Commissioners who may require him to leave the scheme at the end of the next accounting period."

Clearly, if he goes above £312,500, and is not expecting to come below it again and to go back to the original figure, he has that freedom. I repeat that the regulations state:
in the year then beginning is expected to exceed the figure of £250,000".
Under those circumstances, he would have to leave the scheme. However, if he expected his turnover to go back below £250,000, he could remain within it.
In summary, as I was saying, there are rare occasions when one can lay proposals before the Committee of the House, which enjoy widespread or, even possibly, universal approval. Those outside bodies that approved the original principle of cash accounting in the consultative document have a fortiori applauded the extension and expansion of that principle that was made by my right hon. Friend the Chancellor in his Budget. In particular, small business federations, institutions, organisations and lobbies have been generous in their praise of my right hon. Friend's imaginativeness and helpfulness.
Those of us who have run small businesses and been responsible for payrolls and answerable for profits, and who have run them for enough years to have had to have lived with the consequences of our actions, and who have had the time to experience both the downs and ups of what the textbooks of one's youth called the "business cycle", know just how significant and beneficial for small businesses is the change to cash accounting for VAT.
I have been heartened that my hon. Friends, who follow this scene closely and who have done so much in an informed and reasoned way to advance the small business cause, have been so enthusiastic about the difference that the schemes will make. As they know, anything that makes life simpler for small businesses is potentially good for jobs. Such knowledge of how a small business works was not shared by Opposition Members who, in a purblind way, said that there was nothing in the Budget for the unemployed, in bright and blissful ignorance of how 1 million jobs have been created in the economy during the past four years, and by whom.
The measured reaction of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), 24 hours after the Budget, when he demonstrated total confusion between cash accounting and partial exemption, suggests that Opposition Members do not understand VAT either. The preternatural interest that Opposition Members have latterly been taking in the subject of VAT might usefully have been taken earlier in the interests of good opposition. I appreciate that cash accounting and partial exemption


are complicated and esoteric subjects, difficult to grasp readily, but it is as well for this country that the right hon. Member for Sparkbrook, will never have to grasp them in government.
Apart from the trumpet's uncertain sound from the Opposition, these provisions have been widely welcomed by the rest of the nation, and I commend them to the Committee.

Mr. Tony Blair: I think that the Minister may regret his peroration when we come to deal with partial exemption later in our debates. We shall be putting certain matters to him that will demonstrate an adequate grasp of the difference between partial exemption and cash accounting.
Clause 11 has a history that goes back beyond the VAT review for small businesses, which was published in October 1986. When considering the Finance Bill of 1985, in a debate on cash accounting initiated by the Opposition, my hon. Friend the Member for Workington (Mr. Campbell-Savours) spoke eloquently in favour of it. At that time Ministers were much less certain about the benefits of cash accounting. It would seem that the reason for their change in outlook between 1985 and now is the draft 22nd directive from the EEC Commission. That draft directive asked for cash accounting for small businesses, and it was following its publication that for the first time there was a VAT review for small businesses, which called also for cash accounting.
It is correct, as the Minister has said, that the Commission suggested a limit of £100,000 on the turnover of small businesses, which the Government have upped to £250,000. We welcome the clause and the uplift, and we shall be supporting the clause because of the help that it gives to small businesses. However, certain specific questions arise from the manner in which the Government have introduced the clause, and these I shall put to the Minister.
First, will the Minister tell me how many firms will be involved in cash accounting? How many, potentially, which have a turnover of less than £250,000, could opt for it? I should like to know also how many firms have turnovers of more than £100,000 but less than £250,000? In other words, how many firms will be affected by the Government's uplift of the EEC's recommendation?
Secondly, the Minister has said that on Budget day the Government made an application to the Commission for derogation from the sixth directive. Will he confirm that and tell me when he expects the derogation to arise? Until the EEC has given permission for there to be a derogation from the sixth directive, the change to the VAT rules in clause 11 and the regulations promulgated under it cannot take effect.
Thirdly, will the Minister tell me whether he expects any difficulties with the Commission arising from the different limit on turnover that has been recommended by the Government as opposed to the EEC?
Fourthly, will he tell me how a loss in VAT revenue will arise at the end of the first year of the implementation of the system of about £100 million and only £10 million thereafter? I am sure that there is an adequate explanation, and it is as well that we are aware of it when we are debating a system that involves such large sums for the Revenue.
Finally, now that the Minister has acceded to the pressure that came as much from the Opposition Benches as from the Government Benches for cash accounting for small businesses, is he prepared to accede to the request that came last year and the year before that for some power of mitigation within the new system of VAT penalties? There is much concern among small businesses on this score. I shall be grateful if the Minister will respond to that and to my other questions, bearing in mind our welcome for the clause overall.

Mr. Malcolm Bruce: The Minister was right to say that the proposals have been welcomed by Conservative Members, by the Opposition and by alliance Members. I know that the implications of cash accounting for bad debts will be welcomed by many small businesses. The downturn in North sea oil activity, for example, has led to an embarrassing amount of bad debt, and the VAT implications have been potentially quite serious.
It is right that the clause should be welcomed. but I should like to know why, when representations were being made on behalf of individual companies that were facing difficulties—I do not wish to be churlish—it was not possible to say that the change would be introduced at the earliest opportunity. Like the hon. Member for Workington (Mr. Campbell-Savours), I am puzzled by the delay that has taken place in introducing it, but it is only right that it should be welcomed.
I should like to know also whether, in interpreting the regulations, any distinction will be drawn between the balances of businesses opting for cash accounting or annual accounting. Depending on the sector in which a business operates, it is possible for a business mostly to recover VAT. I trust that that will still be allowed and that there will be even greater advantages for businesses that essentially recover VAT. The ability to recover it at an earlier stage will be beneficial to cash flow. It will be helpful if the Minister will make clear that no distinction will be drawn.
The questions that I would have asked about cash accounting have essentially been asked and dealt with, and I merely say that in this context there is likely to be a welcome benefit for small businesses. Much more radical reforms of VAT could still be introduced. First, the overall threshold could be raised to a much higher level. Secondly, we should explore the possibility of abolishing VAT on inter-business transfers. Such a step would radically simplify the administration of the system. Administrative burdens are a major problem for small businesses.
In response to the Minister's attack on those who occupy the Opposition Benches, I wish to say that before I was elected to the House of Commons I was involved in running small businesses on behalf of others, and once on my own account. I am well aware of the real practical problems that are faced by a business that employs two or three people when it has to administer and handle VAT. The simpler the administration can be made, the more a business can concentrate on making and selling its products or services. I hope that the Minister, satisfied though he may be that this measure has widespread support, will not let up and will pursue further every way possible of simplifying the administration and lifting the burden that falls on small businesses. None the less, the measures that are before us are welcome and will be helpful.

Mr. Brooke: The hon. Member for Sedgefield (Mr. Blair) has asked a number of questions which I shall do my best to answer. First, he asked how many firms would be involved that would normally be within the threshold of £250,000. The answer is 840,000 out of a total of 1.49 million VAT traders.
The hon. Gentleman went on to ask me how many I thought were likely to take up the new system. That is to some extent a conjectural question until there is a take-up, but there had to be a calculation to ascertain the cost tht would be incurred as a result of introducing the system. After we have eliminated the repayment traders, to whom I shall return in response to the intervention of the hon. Member for Gordon (Mr. Bruce), and those governed by the retail trading scheme, which effectively have had similar benefits historically, we are left with about 300,000 traders who are potential candidates for the scheme. We are expecting that about 200,000 traders will take advantage of the scheme.
That is our best estimate. The hon. Member for Sedgefield asked me for percentages. My recollection is that the limit of £250,000 involved just under 65 per cent. of all traders—that is, 840,000 against the total—and that 44 per cent. of all traders—in other words, about 660,000 — were involved in terms of the original £100,000 limit.
The hon. Gentleman asked whether the Government sought and applied for a derogation on Budget day. I said so in my introductory remarks, and added that we were encouraged to believe that there had been no suggestion that the Commission saw any significant difficulties with the proposal. That includes the proposal of the new limit that we have set.
The Government are optimistic that the next step of formally notifying other member states will be taken very shortly. If within two months no member state or the Commission requests that the matter be raised by the Council, automatically the approval will have been obtained. Assuming that the Commission circulates it in the near future, we are looking to early July when we might expect, assuming all goes well, that the derogation had been obtained.
The hon. Member for Sedgefield asked about the cost of £100 million in the first year and £10 million in subsequent years. The cost is effectively a cash flow cost, because all we are doing is delaying the taking in of the money. On the figures that I quoted, we estimate that in the first year, when the main bulk of traders will come into the scheme, we shall defer about £100 million of revenue into subsequent years. In subsequent years new traders, and other traders who did not register in the first year, will come in. We will lose some bad debt money because bad debt relief will be furnished through this scheme in the way that I suggested.
Finally, the hon. Gentleman asked about mitigation. I have confirmed on many occasions, and my right hon. and hon. Friends have likewise confirmed, that the working of the penalty and surcharge regime will be reviewed in advance of the 1988 Budget, in the light of a decent span of experience. The scheme will be examined and, assuming my right hon. Friend the Chancellor brings in the 1988 Budget, we will report on the result of that review.
The hon. Member for Gordon asked whether the repayment would be better for those engaged in cash accounting or annual accounting. The cash accounting principle will apply when traders making returns pay their

bills, as well as when they receive money. In the normal course of events, it will not be of interest to repayment traders because they have the advantage of earlier payment or earlier receipt of money under the present arrangement. Repayment traders would normally not be part of the annual accounting scheme because they would be advancing money even earlier than it would normally be received. The regulations for annual accounting will not come out until the spring of next year, but we do not envisage that repayment traders will be included in them.
The hon. Member for Workington (Mr. Campbell-Savours) intervened to ask about the history. I have not been able to receive advice on the detailed debate in 1972, but there is no evidence that cash accounting was a strong runner at that time. I was not a member of the Finance Bill Standing Committee in 1985, so I am grateful to the hon. Member for Sedgefield for having described the contribution of the hon. Member for Workington. It sounds as though cash accounting was a late runner in the stakes, rather than running the whole time.

Mr. Campbell-Savours: I rise to intervene because this is one of a number of initiatives that I have been asking to have reformed since I was elected in 1979. I hope that the Minister will ensure that small businesses understand the effect of this clause. It will mean that instead of delaying invoices—as invariably small businesses do to avoid making substantial payments in a particular quarter—if there is a sudden blip in their supply arrangements, they will be able more efficiently and accurately to keep records and send invoices in the knowledge that they will not he affected in the way they previously would have been.
I remember very well that, on occasions, one delayed invoices because one was concerned that substantial debt to the Exchequer would be incurred because of the rules as they existed in the early 1970s. It is important that small businesses get the message clearly that, if they use this system correctly, it will benefit them substantially.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.

Clause 147

REDUCED RATES OF TAX

Mr. Bruce: I beg to move amendment No. 2, in page 96, line 5, leave out lines 6 to 14 and insert:—

'Table of Rates of Tax


Portion of Value Lower limit £
Upper limit £
Rate of Tax per cent.


0
80,000
Nil


80,000
130,000
30


130,000
190,000
40


190,000
317,000
50


317,000
—
60'.

The Minister will not be surprised to hear that I had not expected to be on my feet quite so early. for reasons which I cannot fathom, we seem to be getting through this Bill at a faster rate than has been the case in previous years. No doubt others will have some speculative reasons as to why that is happening. This amendment—I make no apology for this—is tabled in a constructive spirit. We


contend that the Government have—leaving aside the philosophical argument for and against tax cuts and how those tax cuts should be applied—cut taxes at the top end of the scale more substantially than at the lower end. They have increased net payable taxes at the bottom end of the scale.

This amendment aims to modify the Government's enthusiasm for cutting taxes on inheritance, which have been reduced substantially in recent years and will yield in the current financial year about one third of the yield 60 years ago. No doubt the Conservative Government regard that as a great triumph of change, but it is a switch which is regrettable. The amendment represents a substantial uplift on the current level. The reason for that, rather than a straight indexation of the rates, is that we have taken on board the argument put forward about the increase in house prices. Houses are the single source of most people's wealth. This is a constructive amendment, which we hope Government Members will see in that light.

It may be appropriate to return to the wider argument, if we debate the question that the clause stand part, when I could elaborate on the alliance's view of how inheritance taxes and gift taxes should be developed. At this stage rest the argument on the contention that the right thing to do is to modify the relief the Government are proposing and to target that relief at the other end of the scale, so that under our proposals people with moderate estates — I believe that is the Government's stated objective—will benefit more than those with larger estates. That is a reasonable objective.

I have been somewhat surprised on the occasions when, either as a witness or a participant in the debate, I have heard Ministers argue about the burden of taxation on the low paid and those of relatively modest means and use that argument to describe the imbalance and to justify tax relief at the opposite end of the scale or right across the board. If the Government really are concerned about reducing the tax burden on people of modest means, they should be thinking in terms of limiting the relief that they are giving to people on higher incomes and targeting it to those at lower levels.

This is a modest amendment which is put forward in a constructive spirit. It seeks, as I said at the outset, slightly to modify the Government's enthusiasm in this direction, and we hope that it will be considered in that light.

The Chief Secretary to the Treasury (Mr. John MacGregor): The hon. Member for Gordon (Mr. Bruce) has put me in a little difficulty because he said that he would explain his party's wider views on inheritance tax and so on, in the clause stand part debate. Since his amendment simply proposes an alternative scale, and, therefore, we are talking about inheritance tax, it is much better for me to explain the clause and to deal with the amendment at one and the same time. The hon. Gentleman will have the opportunity in a later debate or in this debate to make his other remarks, but it would be more sensible for me to make one contribution.
Let me start with the actual rates to which the amendment is proposing changes—that is to say, what is in clause 147. In 1979 we came to office committed to drawing the teeth of the capital transfer tax introduced by the right hon. Member for Leeds, East (Mr. Healey). The combination of rampant inflation and the failure to index the starting point had meant that by 1979 capital transfer tax was a penal tax.
In 1980 we doubled the threshold for CTT. In 1981 we reduced the rate of tax on lifetime gifts. In 1982 we introduced the requirement to index the thresholds—to follow the income tax example—to avoid a repetition of the 1970s experience. In 1984 we reduced the death rate and made the rate on all lifetime gifts half the death rate. In 1986, in last year's Finance Act, we made a major reform—the abolition of CTT on lifetime gifts. It was then that the tax was renamed inheritance tax. That measure was widely welcomed as being of great help to those seeking to pass on to the next generation firms and farms that they had built up.
Our intention this year is rather different, but equally important. Since 1979 our policies have encouraged a large expansion in the owner-occupation of housing and the trebling of private direct share ownership. More and more people now own property—houses, shares, and so on—that they will wish to pass on to their children. If no action is taken, more and more of those modest estates will be brought into inheritance tax liability. The purpose of the clause is to take many of those small estates out of inheritance tax altogether and significantly to reduce the charge on the others.
Clause 147 increases the starting point for inheritance tax from £71,000, as it was up until this point, to £90,000. That is an increase of 27 per cent. Had we simply indexed that starting point, it would be £74,000. The result of this substantial increase is to reduce the number of estates paying inheritance tax this year by about one third. or some 12,000 estates in all, compared with the number that would be paying tax with indexation.
The new scale produces reductions in inheritance tax liabilities at all levels. The four point scale—replacing the present seven point scale — is in itself a welcome simplification. But—I make this point again the largest reductions are concentrated at the lowest end. An estate of £ 100,000 will see its tax bill reduced by some 60 per cent. The estate of around £1 million will see only a 3 per cent. reduction in its tax bill. As with the income tax changes which we debated yesterday, we have deliberately skewed the changes to give maximum benefit at the lower end.
The amendment is another example of the confusion that the alliance sometimes gets into in the way in which it approaches such matters. It is either that or it is an example of the alliance's neither-one-thing-nor-the-other approach or split-the-difference approach to policy. Or perhaps the alliance does not know what it is about. From the way in which the hon. Gentleman moved the amendment, I am not sure whether he knows what it is about.
It is true that the effect of the amendment is to increase the burden of inheritance tax, but it would reduce the starting point from £90,000 to £80,000. The effect would be to make 7,000 more estates liable for inheritance tax than would be the case under our proposal. That is why I was astonished to hear the hon. Gentleman say that those with modest estates would benefit more under his proposals than ours. The reverse is true.

Dr. Oonagh McDonald: The Chief Secretary is being a little unkind. He will have noted that the hon. Member for Gordon (Mr. Bruce) said that the debate had began too early. He obviously had not had time to work out the policy. The Chief Secretary should be a little more generous in his remarks.

Mr. MacGregor: I think that the hon. Lady is right. We were told yesterday that the Liberals and Social Democrats needed a little more time to work out their income tax proposals and what they were going to do following the vote last night. Clearly, they have lacked the time to put forward this amendment, because they have got it wrong.
Not only does the amendment show confusion, but it underlines the difference between our parties. The Social Democrats and Liberals want to see more people paying inheritance tax. Moreover, their proposals would cause the greatest relative increase to those to whom we are giving the maximum benefit. Rather than impose the greatest additional charge on the largest estates, the Social Democrats' and Liberals' proposals would place the greatest additional charge on those at the lower end and that is completely alien to the spirit of our proposals. Therefore, I am sure that he will not be surprised to hear that we prefer our clause to his amendment and I would certainly urge my hon. Friends to oppose it.
Nor are the Social Democrats' and Liberals' proposals necessary to protect the yield of tax. Even after the changes that we are proposing. we are still expecting a yield of about £1,100 million in inheritance tax next year, well above the expected yield in 1986–87. That illustrates yet again the point that the Opposition parties have so often failed to grasp—that lower tax rates do not necessarily mean lower tax yields if they are underpinned by a buoyant and flourishing economy. Indeed, even more to the point, if, as has been happening under the Government, they help to bring about such an economy, that is very much their effect.

Mr. Campbell-Savours: Is there any connection between these substantial reductions in capital transfer tax, and, indeed, inheritance tax, over the past seven years, and the £110,000 million which has been shipped abroad in investment overseas since 1979? Is there a connection between the great collapse in taxation for rich people in society and the vast amount of money that has run away and been frittered away overseas?

Mr. MacGregor: There has not been a great collapse in taxation on the richest people. What has been done, and rightly, is that we have reduced the rates of income tax from the absurdly high levels that existed under the Labour Government and so given incentives and encouragement to people to earn more. We have also made some changes in other areas such as investment income surcharge, I believe correctly. I see no parallel between the changes that we have made and the fact that we have been so successful in building up overseas assets. That is due to a completely different set of circumstances.
Because Britain is so much better off under this Government than under the Labour Government, despite all the alleviations that we have introduced in CTT, and now inheritance tax, the yield of the tax will be almost 50 per cent. higher next year that it was in 1978–79. It is a favourite cry of Labour Chancellors and Shadow Chancellors that they will tax and tax until the pips squeak, but that demonstrates that squeaking pips do not produce money for the Exchequer. A resurgent economy based on widely distributed wealth does.
The amendment will be welcomed by all those who believe in a capital and property-owning democracy. As I have said so often before in the House, tht is what we are

constantly and increasingly achieving by increasing wealth and savings and by spreading it to ever wider numbers of the British people. The sale of council houses is but one of the many ways in which that is being achieved. For those who benefit from the sale of council houses, certainly in a generation to come, they will have a profound effect in bringing in financial and other assets and giving the opportunity of financial independence to millions more families. The proposal embodied in the clause enables us to take a further step in that direction.
I believe that the proposals will be welcomed by all who believe in the importance of encouraging the creation of wealth, rather than the vain attempt to use the tax system to achieve a redistribution of wealth that is inimical to its creation. They will be welcomed by those who think that it is a healthy development that more and more people, lower down the income scale than ever before, will be able to leave property to their children, and to enable them in turn to enjoy the independence that property ownership can bring. The proposals are a further modest contribution to our wider objectives, and as such I commend them to the Committee.

5 pm

Mr. Ian Gow: Nothing illustrates more clearly the confusion of thought in the minds of members of the Social Democratic party than the amendment moved by the hon. Member for Gordon (Mr. Bruce). As my right hon. Friend the Chief Secretary pointed out, the effect of the amendment is precisely the opposite to the intention that the hon. Gentleman explained to us. If we accepted it, we should penalise the least well off. It is quite extraordinary that the Social Democratic party should bring such an ill-thought-out, ill-considered proposal before the Committee. Mercifully, however, there is no prospect whatever of the amendment being accepted.
My right hon. Friend made another important point. The whole philosophy of the Government, rightly, is to reduce the burden of taxation on the British people. A major cause of the modest economic performance of this country since 1945 has been the burden of taxation. However, there is still too much of a guilt complex about reducing taxation, which some people think is somehow immoral. I make the opposite assertion. I say that high taxation is immoral, and that it has been a dead hand on the economic performance of the country. Now we are beginning to see that, as my right hon. Friend so clearly explained, lower rates of tax produce a higher yield and greater wealth in which all can share.
The hon. Member for Workington (Mr. Campbell-Savours) illustrated how out of touch he, his party and the Social Democrats are with what has been happening all over the United Kingdom since the right to buy was given for the first time to those who previously had no choice. One million houses and flats, whose tenants were previously condemned to live in them for ever as local authority tenants, have now been sold. My right hon. Friend was right to mention that the acquisition of that wealth by over a million former tenants will bring some of them nearly up to the figure that appears in clause 147. From now on, £90,000 will be the limit below which no inheritance tax will be paid. It is not far-fetched to say that the value of some former council houses is now approaching that figure. I welcome the raising of the threshold from £71,000 to £90,000, and the fact that we are


able to obtain a higher yield from lower rates and higher thresholds for inheritance tax is proof positive of the economic justification for the Government's proposals.
My right hon. Friend told the Committee that many estates in the coming year would have been subject to inheritance tax but for the proposed changes in clause 147. That will mean a significant reduction in the burdens placed upon the Inland Revenue. I do not know whether my right hon. Friend will speak again in this debate, but it would be interesting to hear from him whether there will be any reduction in the staff of the capital taxes office as a result of the changes that he proposes in the Bill.
I hope that, should there be any more contributions from members of the Social Democratic party or the Liberal party during the Committee stage of the Bill, they will be better informed than the hon. Member for Gordon.

Dr. McDonald: First, let me point out that we entirely agree with the Chief Secretary about the confusion contained in the amendment, and in what was said by the hon. Member for Gordon (Mr. Bruce). We do not intend to support what he said. The upshot of his amendment would be a decrease in the tax take from the present regime, but an increase in taxation on the proposals in the Bill.
I do not think that it is worth spending much more time on the points made by the alliance, as they were indeed confused. Perhaps by the time that the election comes, the alliance will have thought out its policy. But I feel that it is more important now for us to consider inheritance tax in the context of the general issue of taxation on individuals; and to bear in mind that, since 1979, the Government have reduced the annual yield of capital transfer tax — inheritance tax, as we now refer to it. Between 1979 and 1986, the reduction was about £488 million.
The Chief Secretary referred to some of the changes in capital transfer tax that the Government have made since 1979. However, he omitted to mention the costs as they were described in the Red Book. If I may take the most expensive example, the doubling of the threshold in 1980 cost £125 million. The full-year cost of clause 147 is estimated in this year's Red Book to be £170 million. That makes a total of £658 million by way of reduction in capital taxation.
The Chief Secretary made great play of reducing the rates and getting more tax. That does not fit very well with what the Minister of State, Treasury said in Standing Committee on last year's Finance Bill. He said:
There is no disagreement between the hon. Lady"—
he was referring to me—
and the Government that the yield from capital tax has fallen. The hon. Member for Workington (Mr. Campbell-Savours) and I had a prolonged exchange on the Floor of the House on clause 80 … I gave him a global sum that acknowledged that the yield had been substantially reduced during the life of the present Government." — [Official Report, Standing Committee G, 10 June 1986; c. 387.]
At the immense full-year cost of £170 million, the Government have reduced the burden of capital taxation. That figure compares badly with the mere £10 million spent on special tax relief for the over-80s. The Government have shown plainly that they put their money in the pockets of their friends. They weep crocodile tears for the plight of the elderly, but spend a mere £10 million on them.
The Chief Secretary also made great play of the benefits that the proposal would bring to home owners. But what

he forbore to mention was the extent of house price inflation, particularly in London and the south-east, where house prices are rising much faster than inflation. I see that the Chief Secretary is nodding away as though that just happens and as though it is no responsibility of the Government, but since 1979 the Government's record on both private and public sector house building has been dismal indeed. It is only recently that there has been an increase in private sector house building. Many Opposition Members are only too well aware of the fact that there has been no public sector house building whatsoever. It is not surprising, therefore, that house prices are inflated.
Many people have been able to buy their own homes, but those hon. Members with constituencies in London and in the south of England know that the price of a new house is well beyond the means of couples on average, or even above-average, incomes. Those who come to our advice surgeries are not worried about the amount of tax that they will have to pay on the house that they have inherited from their parents; they are worried about finding somewhere to live because they cannot afford to buy their own house or flat.
The price of a very tiny house in my constituency is about £50,000, which is well beyond the means of most people. They are therefore faced with a long wait for council accommodation. A young couple with a child may often be housed in the third bedroom of their parents' council house. Alternatively, they have nowhere to live at all. About 1 million people are far more worried about homelessness than they are about having to pay inheritance tax on their parents' home. The Chief Secretary pretends that the Government are concerned about such people but he has it all wrong and he is trying to give the wrong impression to the House. This clause is designed to deal not with the problems of home ownership but with the Government's determination to relieve the burden of taxation on the better off while increasing the burden on the worst off.
During Question Time today there was an exchange on the increase in the tax burden on those who are on half average earnings. A comparison of the 1978–79 tax system with the regime that applied up to the Budget—and in no way has it been altered by the Budget and the Finance Bill—shows that the top 1 per cent. of tax units on an income of £40,000 or more a year have had a reduction in the amount of tax for which they are liable of £7,700, while the bottom 50 per cent. of tax units have had a reduction of only £120. The Chief Secretary spoke at great length about helping people to own their own homes, but that is not the purpose of reducing the rates of inheritance tax. It is another part of the rigging of the tax machine to ensure that the better off pay far less tax while the poor pay tax to line the pockets of the rich.
We have seen at every turn during the last eight years that, sometimes blatantly and sometimes subtly, that is what has happened. The Parliamentary Private Secretary to the Chief Secretary to the Treaury is looking somewhat sceptical. I only wish that he would read Hansard from time to time, especially the Financial Secretary's answers to written questions in which he is forced to tell the truth and puts his name to very detailed answers that make that perfectly clear to all concerned.
5.15 pm
It is also somewhat disingenuous of the Chief Secretary to take this clause in isolation. It has to be seen in the context of all the measures that deal with inheritance tax in the Finance Bill. In clause 148 and schedule 13 the Government have accepted the principle of the amendents that were moved by the hon. Member for Corby (Mr. Powell) during the proceedings in Standing Committee on last year's Finance Bill. It will be interesting to find out why that was done, and we shall pursue the point in Committee. The Minister of State says more in Standing Committee than the Chief Secretary would like him to do. He is an open and honest man, and it is most refreshing for Opposition Members to hear all that he has to say.
Referring to the amendment that had been moved by the hon. Member for Corby, the Minister of State said:
The amendments deal with the effects of termination and creation of life interests … and are intended to probe the reason for those interests being treated in the same way as an absolute gift of free estate.
The Minister of State then made it clear that these interests were fully discussed when the matter was first introduced in 1982. He said:
The trust regime was subject to consultation in 1982 and it has been widely accepted … The Government propose to leave the present trust regime in being, as a defence against the death charge, to prevent the death charge becoming voluntary."—[Official Report, Standing Committee G, 10 June 1986; c. 389–91.]
However, the thrust of the proposals of the hon. Member for Corby suddenly appear in other clauses of the Finance Bill that have been carefully left out of the proceedings in Committee of the whole House. The Minister will say that all will be made safe by the anti-avoidance provisions of schedule 13, but that schedule will be subjected to the strictest parliamentary scrutiny. It is not possible to rush through that schedule before the election.
Once again we are deeply suspicious of the reduced rates of inheritance tax. The Chief Secretary put the best gloss on it that he possibly could from his point of view, but it has little to do with protecting the interests of the so-called modest home owner. It has much more to do with the Government's usual trick of lining the pockets of the rich. We reject the way in which the Government continue to rig the tax regime in their favour.

Mr. Campbell-Savours: I want to raise an issue on this amendment that was touched on by my hon. Friend the Member for Thurrock (Dr. McDonald). It relates to my theory about the effect of capital gains tax and capital transfer tax in the south of England on property prices. During the last seven years one of the greatest movements in property prices nationally has taken place in the home counties and also in many other areas where there are no Labour Members of Parliament. It is about time that the people in those areas, who in the last seven years have increasingly been willing to move towards Conservatism, stopped to consider what is happening, why they are paying higher and higher prices and why hundreds of thousands of young people in the southern counties cannot afford to buy a home. I can give them the answer tonight.
Large numbers of people in the south, when they buy a property, acquire substantial tranches of wealth, that arise directly out of the reductions in capital transfer tax that have taken place during the last seven years. The reductions that have taken place in capital gains tax as well, certainly as they affect some people, have also

liberated funds there for use in the purchase of property. It is those two things separately, and in their interaction, as they are used in the process of acquiring property, that force up property values in the south.
Perhaps I can give some examples. Let us take a Georgian house in my constituency. For what might be regarded as a typical London Georgian house, one would probably pay probably £20,000 to £25,000. In London the price might be £400,000. In the constituency of my hon. Friend the Member for Thurrock it might be £70,000 or £80,000. Although that is only one fifth of the price of a similar property in central London, it is still three times higher than the price of a similar property in the north of England. The reason is very simple. The money does not circulate in those communities in the north, in the midlands, or in Scotland in sufficient volume to influence the property market by being available for the purchase of property.
One of the most efficient ways of bringing some sanity back into property prices in the London area and the south of England and giving people the opportunity to buy their own homes — which, the Government tell us, is their policy—would be substantially to increase taxes in this area and take out of the economy this money, which is being used for industrial investment, and so on, overseas, and also for inflating the property boom in the south of England.
I tell people outside the House that they would do well not to sit and gloat over the substantial increases in their assets in London and other parts of the south. They ought, rather, to consider the hundreds of thousands, indeed millions, of people in the south of England who will never own a home if we allow the current tax regime to go on well into the future. We are not talking only about Labour voters. We are talking also about many Conservatives who also want to own their own homes but who will never have the opportunity to do so because of the fund of money that is being made available to prop up prices in the south.
One of the facets of the "two nation" argument that has developed over the past few years is this difference that exists in property prices between the south and the rest of the country. It is accentuated by the concentration of wealth here. If we were to look at the figures — this reduced tax base, but greater revenue, which the Minister tells us he is getting from these taxes—they would show that there is a heavy concentration of wealth in the south. It is all splashing about in what is geographically a very small area and it is inflating house prices in a way that is against the public interest. I think that the Government should act accordingly.

Mr. William Cash: A recent survey in Stafford indicated the required income for a person who lived at the upper end of the income scale so that he could have a five-bedroomed house, a fairly substantial car and a child away at school, and also at the lower end of the scale, which is where the houses are somewhat cheaper. I have just bought a house in Stafford for £8,000, which was extremely interesting to me, and it leads me to the point that there are significant reasons—this is the other side of the argument of the hon. Member for Workington (Mr. Campbell-Savours) — why people should move to the midlands or the north, because they get significantly better value for money as regards the cost of living and the value of property in what is quite often a prosperous town.

Mr. Campbell-Savours: I am grateful to the hon. Member for giving way to me when I have just made a contribution.
Will he accept that the fact that people move north should be weighed against the fact that many do not move north because they are scared to jump off the escalator of property prices in the south? They are concerned that if they move from the south to the north they will never be able to move back to the south because they will not be able to afford to do so. That is part of the north-south divide.

Mr. Cash: That is an interesting point, to which I have an immediate answer. GEC recently moved its transformer division to Stafford. The proof of the pudding is in the eating, because a substantial proportion of the people who lived in Broadstairs, when they saw what was on offer and what value they could get by moving to Stafford, did so with alacrity. I hope that I have dealt with the point that the hon. Gentleman made. There is a considerable incentive for people to move, because it is to their advantage.
We are here, however, dealing with inheritance tax. The hon. Member for Workington raised the question whether it was unfair that people on lower incomes were unable to acquire property and hold it in trust for, or for the benefit of, their children. It is the Labour party's policy of denying, or at any rate inhibiting, the right of people to buy council houses that is causing serious difficulties for those who would like to be members of the property-owning democracy.

Mr. Campbell-Savours: That is not part of Labour's policy.

Mr. Cash: That may be so, but there has always been this inhibition. It may be that this is a reaction to prospects of electoral success and the party is trimming its policies.

Dr. McDonald: I am sure the hon. Gentleman is aware that not only would we insist on people having the right to buy council houses, but that we would ask the hon. Member to accept the extension of the right to buy privately rented property. Is he prepared to go the whole hog on the question of private home ownership?

Mr. Cash: I am impressed by the hon. Lady's conversion. If she and her colleagues have now seen the light on this policy, which is fundamental to the Conservative philosophy, all I can say is that they really have got the skids under them and that their conversion to this policy, in electoral terms, is to be encouraged. If the goings-on in the far north, or rather, if I may say so, in the pockets of Militant Tendency and Left-wing politics in London and elsewhere, are shared by the Front Bench of the Labour party, we really will be travelling. But the reality is that the Left wing of the Labour party does not believe in the policies put forward, purely for electoral reasons, by the hon. Member for Dagenham (Mr. Gould).
I shall deal briefly with the alliance, because this is its amendment. Do the proposers of the amendment believe that it is a good idea to have a 100 per cent. inheritance tax? I have no doubt that the hon. Member for Gordon (Mr. Bruce) will give me quick, straight answers. Particularly with regard to agricultural land, should there be a complete prohibition of the opportunity for farmers to pass on their land to their children? Does the alliance believe that it is essential that farming land should be

nationalised? In the agricultural context, I believe it to be essential that farmers and those who own the sort of property that I have mentioned should have the opportunity to pass it on to succeeding generations. The hon. Member has indicated not, but I should like to hear it from his lips.

Mr. Bruce: The hon. Member for Stafford (Mr Cash) asked three questions. The answers are no, no and no.

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong): Does the hon. Gentleman wish to reply to the debate?

Mr. Bruce: I will reply briefly to the debate. As the Committee has indicated a wish to be tidy I will make a couple of other points so as to avoid having to speak again.
The exchanges at the beginning of the debate reminded me that in Scotland we are used to referring to the auld alliance. Speeches from the Tory and Labour Benches against me showed alliance at work and perhaps the reactions were predictable. The hon. Member for Eastbourne (Mr. Gow) must be under pressure from the alliance in his constituency, judging by the speeches which he constantly makes. He chose to launch a strenuous attack on an amendment which concedes the need to raise the threshold but is not as enthusiastic about it as the Government. I feel that he protested a little too much to be convincing.
On house prices, which I shall not deal with other than as they relate to the amendment, when the Government are raising thresholds, which we think is legitimate up to a point, it is reasonable to take account of house price increases, given that the home is the main capital asset of most families. The Government have to be careful that they do not get ahead of the field to the point where their tax changes actually fuel increases in house prices rather than reflect them.
We believe that the increases the Government have gone for are more likely to fuel than to reflect increases in house prices, especially when coupled with tax relief above the standard rate of income tax for the purchase of houses. That is why we have argued that mortgage tax relief, which should continue, should be restricted to the standard rate of tax and that the increase in inheritance tax should reflect rather than add to the increase in house prices. In our amendment we have sought to get the balance right. Certainly we feel that we are closer to the correct balance than is the Government's proposal.
The Chief Secretary made the slightly spurious and perhaps unprovable contention, which was echoed by some of his colleagues, that by cutting the incidence of tax the Government have boosted revenue. If they had not cut the burden of tax, would not the buoyancy of the revenue have been further enhanced? The reliefs that the Government have allowed over the years on capital taxes have accumulated to about £800 million. I think that we are entitled to assume that that should be available for spending on services which should have higher priority than increasing relief to the better-off members of the community, who have done exceptionally well out of the Government.
If more relief is given to the richer members of the community, the Government are less able to attack the


problems facing the people at the bottom. There is any amount of evidence to show that as a direct result of Government policy over the last eight years the rich have got richer and the poor have got poorer. The provisions of the clause will increase rather than reduce the gap. That is why we have drawn attention to it and have sought to modify the increase.
One argument that the Government use against both major Opposition groupings is that when we put forward plans for increasing investment in the Health Service, in education or in housing it is not possible to achieve that without paying for it. We acknowledge that. On the alliance Benches we have assiduously costed our plans and we will put detailed information to the electorate when the time comes.
The converse is that, if the Government go on giving away in extra relief substantial sums of money, their ability to fulfil their pledge to maintain standards in the Health Service and in education is shown to be a sham. The people know that these services have not been safe in the Government's hands because they have been keener on giving money back over-generously to the better-off and have therefore reduced their ability to provide funds for services needed by the whole population and for dealing with the problems of poverty.
The alliance believes that there should be taxes on capital and that there should be fair and effective methods of redistributing wealth. The Conservative Government have said nothing about the distribution of wealth; they talk only about its accumulation. As I have said, the distribution is getting more rather than less unequal.

Mr. Cash: The hon. Gentleman has said that we are not interested in the distribution of wealth. Nothing could be further from the truth. By making the most of resources and by developing wealth from the basis of a profitable property-owning democracy, including the principle of inheritance, one is able to accumulate wealth and as a result to distribute it. The hon. Gentleman has demonstrated that he does not have the faintest idea about economics. I am surprised that he holds his present position in the alliance.

Mr. Bruce: These interventions come from quarters of which we know the composition of the electorate the last time it was tested. Contrary to what the hon. Gentleman asserts, I repeat that the concentration of wealth has become more unequal during the eight years of the Government's tenure of office. That is a fact for which there is ample evidence and support.
In tabling the amendment we have recognised the changes that have taken place. I have already said that we think it proper to reflect changes in average house prices but that we do not think it right for the Government to go too far down the road so that they no longer have the ability to achieve balance and justice.
The Government should promote taxes on capital which are effective at redistributing wealth and which are seen to be fair. That is why we have argued the case for tighter taxation of lifetime gifts and have recommended consideration of an accession tax. That is a simple tax on the recipients rather than on the holders of wealth. The tax efficiency point is that, if a wealthy person chooses to distribute his or her wealth by dividing it among a large number of recipients, the total tax burden accruing to that

wealth is reduced. For example, if £1 million is given to one person, that person will inevitably pay a substantial amount of tax on accession of that wealth. If the money is given to 100 people, the total tax take to the Treasury will be reduced because the people receiving the gift will not reach the higher threshold. It is a simple tax-efficient system which would encourage wealthy people to distribute their wealth widely in a way that has not happened recently. As I have said, the reverse has been the case.
The debate has been worth while. It has opened up some interesting avenues. I acknowledge that the diference between our amendment and what the Government propose is not substantial but in our view it would be a more balanced approach to the problem. The purpose of the amendment was to secure the debate which we have had. We wanted to argue the case that the Government are going too far. I make no apology for repeating that, as the house price argument has been a major factor in justifying the Government's action, I believe that the Government have gone too far down the road and may be responsible for increasing house prices, particularly in the areas where prices are highest. In those circumstances, I believe that our amendment has considerable merit.
Given the thinness of our numbers, for reasons which puzzle many of us and about which people outside speculate, I do not wish to press the amendment, but I thank the Committee for the debate.

The First Deputy Chairman: Is it the will of the Committee that the amendment be withdrawn?

Hon. Members: Yes.

Amendment, by leave, withdrawn.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 186, Noes 69.

Division No. 150]
[5.40 pm


AYES


Alison, Rt Hon Michael
Fox, Sir Marcus


Ashby, David
Franks, Cecil


Atkins, Rt Hon Sir H.
Fraser, Peter (Angus East)


Atkins, Robert (South Ribble)
Freeman, Roger


Baker, Nicholas (Dorset N)
Galley, Roy


Baldry, Tony
Gardner, Sir Edward (Fylde)


Banks, Robert (Harrogate)
Garel-Jones, Tristan


Bennett, Rt Hon Sir Frederic
Goodhart, Sir Philip


Biggs-Davison, Sir John
Gorst, John


Blaker, Rt Hon Sir Peter
Gow, Ian


Boscawen, Hon Robert
Grant, Sir Anthony


Braine, Rt Hon Sir Bernard
Greenway, Harry


Brinton, Tim
Gregory, Conal


Brooke, Hon Peter
Griffiths, Peter (Portsm'th N)


Browne, John
Grylls, Michael


Bruinvels, Peter
Hamilton, Hon A. (Epsom)


Buck, Sir Antony
Hamilton, Neil (Tatton)


Carlisle, John (Luton N)
Hampson, Dr Keith


Carlisle, Rt Hon M. (W'ton S)
Hannam,John


Cash, William
Harris, David


Chalker, Mrs Lynda
Harvey, Robert


Chapman, Sydney
Hawksley, Warren


Clark, Sir W. (Croydon S)
Hayes, J.


Coombs, Simon
Hayward, Robert


Cope, John
Heathcoat-Amory, David


Cormack, Patrick
Heddle, John


Corrie, John
Henderson, Barry


Couchman, James
Higgins, Rt Hon Terence L.


Dorrell, Stephen
Hind, Kenneth


Eggar, Tim
Holland, Sir Philip (Gedling)


Farr, Sir John
Holt, Richard


Fenner, Dame Peggy
Howarth, Alan (Stratf'd-on-A)


Forman, Nigel
Howarth, Gerald (Cannock)


Forth, Eric
Howell, Ralph (Norfolk, N)






Irving, Charles
Raison, Rt Hon Timothy


Jackson, Robert
Rhodes James, Robert


Johnson Smith, Sir Geoffrey
Rhys Williams, Sir Brandon


Jones, Robert (Herts W)
Ridsdale, Sir Julian


Jopling, Rt Hon Michael
Rippon, Rt Hon Geoffrey


Kershaw, Sir Anthony
Roe, Mrs Marion


King, Roger (B'ham N'tield)
Rossi, Sir Hugh


Knight, Dame Jill (Edgbaston)
Rumbold, Mrs Angela


Knowles, Michael
Ryder, Richard


Lang, Ian
Sackville, Hon Thomas


Latham, Michael
Sainsbury, Hon Timothy


Lawler, Geoffrey
Sayeed, Jonathan


Lawrence, Ivan
Shaw, Sir Michael (Scarb')


Lawson, Rt Hon Nigel
Shelton, William (Streatham)


Lennox-Boyd, Hon Mark
Shepherd, Richard (Aldridge)


Lester, Jim
Silvester, Fred


Lewis, Sir Kenneth (Stamf'd)
Sims, Roger


Lightbown, David
Skeet, Sir Trevor


Lilley, Peter
Smith, Sir Dudley (Warwick)


Lord, Michael
Speller, Tony


Lyell, Nicholas
Spencer, Derek


McCrindle, Robert
Squire, Robin


McCurley, Mrs Anna
Steen, Anthony


MacGregor, Rt Hon John
Stern, Michael


MacKay, Andrew (Berkshire)
Stevens, Lewis (Nuneaton)


Maclean, David John
Stewart, Allan (Eastwood)


McLoughlin, Patrick
Stewart, Andrew (Sherwood)


McNair-Wilson, M. (N'bury)
Stewart, Ian (Hertf'dshire N)


Major, John
Stradling Thomas, Sir John


Malins, Humfrey
Taylor, Teddy (S'end E)


Malone, Gerald
Tebbit, Rt Hon Norman


Maples, John
Temple-Morris, Peter


Marland, Paul
Thomas, Rt Hon Peter


Marshall, Michael (Arundel)
Thompson, Donald (Calder V)


Mates, Michael
Thompson, Patrick (N'ich N)


Mather, Sir Carol
Thorne, Neil (llford S)


Maude, Hon Francis
Thornton, Malcolm


Merchant, Piers
Thurnham, Peter


Miller, Hal (B'grove)
Townend, John (Bridlington)


Mills, Sir Peter (West Devon)
Tracey, Richard


Mitchell, David (Hants NW)
Trippier, David


Montgomery, Sir Fergus
Twinn, Dr Ian


Moynihan, Hon C.
van Straubenzee, Sir W.


Murphy, Christopher
Vaughan, Sir Gerard


Nelson, Anthony
Wakeham, Rt Hon John


Neubert, Michael
Waller, Gary


Newton, Tony
Wardle, C. (Bexhill)


Nicholls, Patrick
Warren, Kenneth


Onslow, Cranley
Watson, John


Oppenheim, Phillip
Watts, John


Oppenheim, Rt Hon Mrs S.
Wells, Bowen (Hertford)


Ottaway, Richard
Whitfield, John


Page, Sir John (Harrow W)
Wiggin, Jerry


Page, Richard (Herts SW)
Wilkinson, John


Percival, Rt Hon Sir Ian
Winterton, Mrs Ann


Powley, John
Wood, Timothy


Price, Sir David
Young, Sir George (Acton)


Prior, Rt Hon James



Proctor, K. Harvey
Tellers for the Ayes:


Pym, Rt Hon Francis
Mr. Michael Portillo and Mr. Peter Lloyd.


Raffan, Keith





NOES


Abse, Leo
Dalyell, Tarn


Archer, Rt Hon Peter
Davis, Terry (B'ham, H'ge H'l)


Beckett, Mrs Margaret
Dewar, Donald


Bidwell, Sydney
Dixon, Donald


Blair, Anthony
Dobson, Frank


Bray, Dr Jeremy
Dormand, Jack


Buchan, Norman
Dubs, Alfred


Callaghan, Rt Hon J.
Fatchett, Derek


Campbell-Savours, Dale
Faulds, Andrew


Canavan, Dennis
Field, Frank (Birkenhead)


Clark, Dr David (S Shields)
Foot, Rt Hon Michael


Clwyd, Mrs Ann
Foster, Derek


Cocks, Rt Hon M. (Bristol S)
Freeson, Rt Hon Reginald


Cook, Frank (Stockton North)
Garrett, W. E.


Corbett, Robin
Godman, Dr Norman


Cox, Thomas (Tooting)
Golding, Mrs Llin


Crowther, Stan
Gould, Bryan





Hamilton, W. W. (Fife Central)
Nellist, David


Harrison, Rt Hon Walter
Patchett, Terry


Hattersley, Rt Hon Roy
Pike, Peter


Healey, Rt Hon Denis
Powell, Raymond (Ogmore)


Heffer, Eric S.
Prescott, John


Hogg, N. (C'nauld &amp; Kilsyth)
Ross, Ernest (Dundee W)


Kaufman, Rt Hon Gerald
Sheldon, Rt Hon R.


Leighton, Ronald
Shore, Rt Hon Peter


McDonald, Dr Oonagh
Short, Ms Clare (Ladywood)


McKay, Allen (Penistone)
Skinner, Dennis


McNamara, Kevin
Smith, (C.flsl'ton S &amp; F'bury)


McWilliam, John
Spearing, Nigel


Madden, Max
Torney, Tom


Marshall, David (Shettleston)
Williams, Rt Hon A.


Maynard, Miss Joan
Winnick, David


Meacher, Michael



Millan, Rt Hon Bruce
Tellers for the Noes:


Miller, Dr M. S. (E Kilbride)
Mr. Frank Haynes and Mr. Tony Lloyd.


Mitchell, Austin (G't Grimsby)



Morris, Rt Hon A. (W'shawe)

Question accordingly agreed to.

Clause 147 ordered to stand part of the Bill.

Clause 160 ordered to stand part of the Bill.

Clause 18 ordered to stand part of the Bill.

Clause 33

EMPLOYEE SHARE SCHEMES, ETC.

Mr. MacGregor: I beg to move amendment No. 4, in page 23, line 7, after 'Schedule', insert
'and the consequential provisions relating to capital gains tax in Part IIA thereof.

The First Deputy Chairman: With this it will be convenient to take amendment No. 8.

Mr. MacGregor: It might be helpful if I discuss clause 33 and schedule 4, which have two main purposes. They introduce an improvement to the 1980 and 1984 Finance Acts and share option schemes—[Interruption.] I can understand the puzzlement of the hon. Member for Dagenham (Mr. Gould). I was rather surprised to find myself speaking on this amendment so soon.

Mr. Bryan Gould: Perhaps we could jointly clear up this slight confusion. I had assumed, Mr. Armstrong, that, in accordance with the business motion which the Committee passed yesterday, we were proceeding to deal with clause 160.

The First Deputy Chairman: That is true. I put the Question, That clause 160 stand part of the Bill, and it was carried. I also put the question on clause 18.

Mr. MacGregor: There were no speakers on clause 160. Apparently, no hon. Member wanted to speak to it.

Sir Brandon Rhys Williams: On a point of order, Mr. Armstrong. I came with the intention of speaking on clause 160. I think that we were expecting a speech from my hon. Friend the Economic Secretary. I did not think that it was my place to rise before my hon. Friend had done so. In fact, I had a personal assurance from him that he was about to speak on that subject. I am surprised that the Committee will not be able to debate this important matter.

The First Deputy Chairman: I understand the hon. Member's disappointment but, when I put the Question that the clause stand part of the Bill, no hon. Member rose. I cannot call hon. Members who do not rise

Mr. MacGregor: Clause 33 and schedule 4 have two main purposes. They introduce an improvement to the 1980 and 1984 Finance Acts and share option schemes. This is a new facility to enable employees whose company is taken over to exchange their existing share options under an approved scheme for options over shares in the acquiring company. This meets representations on the point, and I am sure that it will be welcomed. Until now, an employee in this situation has been forced either to realise his existing option with the risk that, if three years have not elapsed, the gain will be liable to income tax, or to maintain the option in a company in which the shares will be mostly held by the new parent. There is to be no statutory obligation on the acquiring company to extend this opportunity to the employees of the target company. However, this factor will certainly become one of many discussed between all the parties concerned at the time of the merger or acquisition.
The intention is that the employees concerned should be no worse off and no better off, technically, than if the takeover had not occurred, and they had simply held on to their original options. To qualify, therefore, the new options must, first, continue to be governed by the rules of the target company's existing schemes — this will ensure, for example, that the employees do not lose any rights attaching to the options which they had hitherto enjoyed or, for that matter, gain any rights that they did not previously have—and, secondly, be equal in value to the old options at the time of the exchange. This is very much a technical matter. This condition will be satisfied where the total market value of the shares under the old and new options at the time of the exchange is the same and the total price payable on exercise of the new option is also the same as the total exercise price under the old option.
The two Government amendments ensure that employees are not faced with an unintended capital gains tax charge as a result of such an exchange. Under an amendment which has not been called, although its purport may be discussed in the debate, there is a suggestion to make the approval of a company's Finance Act 1984 share option scheme conditional upon it also introducing an all-employee 1978 or 1980 Finance Act scheme. We want to encourage the take-up of all three kinds of approved scheme. A restriction of that sort would not help that objective. For many companies, an all-employee scheme may initially be inappropriate—that is why I would not wish to make a restriction.
We would want this change to be available to both 1980 and 1984 schemes at once. For many companies, an all-employee scheme may initially be inappropriate or seem to burden them. There is a danger that a condition of this kind would discourage such companies from introducing any scheme at all—discretionary or all-employee. There is no evidence to suggest that the introduction of the 1984 scheme has had an adverse impact on the other schemes. On the contrary, all three schemes are popular and successful in their own right. For example, in the year to March 1987 a record total of over 200 new all-employee schemes were approved by the Inland Revenue, bringing the total to over 1,250 such schemes, and there are now more than 2,000 approved 1984 schemes.
Clause 33 and schedule 4 also introduce certain technical changes to the close company material interest provisions as applied when determining whether employees may participate in their company's approved share

or share option schemes. Some of these changes were announced by my right hon. Friend the Financial Secretary on 13 November last year. All of them —clause 39 deals with a related matter—are designed to help to ensure the smooth running of all three kinds of approved employee share schemes, but there are also some consequential changes in the way in which these provisions apply for close company interest relief purposes.
The main effect of the present provisions will be to ease the position so that trust-held shares may be disregarded in calculating the material interest disqualification where the individual irrevocably disclaims or otherwise surrenders his interest in the trust and he has received no benefit from it. This will help those individuals who might otherwise have been unable to participate in an approved scheme. There are also certain other more technical changes mainly designed to clarify and ensure the smooth running of the existing rules.
6 pm
The spread of share ownership to all levels of a company is, and has been throughout, a major objective of the Government. These modest changes will enhance the employee share ownership movement still further.
We seem to be making very good progress today, Mr. Armstrong, and I thought that in order to facilitate the progress it would be better to talk about clause 33 and schedule 4 in general, but in particular I have referred to the purposes of amendments 4 and 8 and I commend them to the Committee.

Mr. Gould: In accordance with the lead provided by the Chief Secretary, I propose to speak briefly in a debate which I assume will cover the clause itself and the amendments.
My hon. Friends and I generally support employee share option schemes and welcome the measures in the clause and in the schedule, and indeed in the amendments. It is clearly right to take account of the immense impact that takeovers have had over the last year or two years, and there seems no reason to believe that that impact will be very much reduced in the immediate future. Huge sums have been involved. I will not weary the Committee with a recital of the billions of pounds' worth of assets involved in bids over recent years. We have the prospect of that continuing, although I suppose it is fair to say, judging simply by a reading of newspaper headlines, that there has perhaps been a temporary lull over the last month or two.
But the conditions that prompted the takeover fever and the merger mania still prevail. The deregulation of the City and the cash-rich companies which now, both as victims and as predators, feature in these takeover bids are still there. Those who are victims still continue to offer very attractive targets and those who are predators clearly have the cash and the resources with which to make their predatory raids. They do so and they are likely to continue to do so, largely because the conditions in which investment in new capacity might be attractive are absent.
For those reasons it seems to me that the spate of takeover bids is likely to continue and it is therefore absolutely right, and indeed commendable, that the Government should be legislating to take account of the likelihood that more and more employees will be affected by takeover bids in the future. Indeed, in January 1986 the Transport and General Workers Union estimated that no fewer than half a million people worked for firms which


were the subject of or were involved in takeover bids. Therefore, it is, potentially at any rate, a very substantial problem.
In those circumstances, I think it is right that those who are members of employee share option schemes should have the sort of protection that is provided in these new provisions. Nevertheless, the provisions leave open a number of questions, and certainly leave a couple of questions hanging in the air. It is to those questions that I should like to draw the Chief Secretary's attention.
If employees who participate in share option schemes are to be given this protection in the case of a successful takeover bid, why is similar protection not being given to the beneficiaries of pension funds? Why is similar provision not being made for employees in general, simply by virtue of their position as employees? After all, far and away the most important piece of property which is at risk as a consequence of a takeover bid is not a small holding in a share option scheme but the job of a worker, not to mention his or her rights as a beneficiary under a pension fund. Therefore, we are bound to ask what is so special about rights conferred by share ownership. Why should the protection of this provision he made available to those who own bits of paper in respect of their shareholdings but not to employees as workers — in other words, not in relation to their jobs?
The Chief Secretary must surely be aware of the problems. He must know that on almost every occasion on which a takeover bid is mounted the workers, usually the employees of the victim company, are extremely nervous, and often with very good reason, about whether their jobs are going to be placed at risk. It is remarkable that in these circumstances it is the employees whose jobs are most on the line who are often kept most in the dark. It is they who have the fewest rights to information and who, generally speaking, are not consulted about what is going on. They know that rationalisation — which is the term usually applied to the objective of takeovers—is almost always a euphemism for laying people off. Therefore, why is no protection being provided to workers qua employees, quite apart from the question whether they own shares?
More particularly, what about the rights of pension fund beneficiaries? Again, the Chief Secretary must be aware—I know that his Department is, because it has taken some small action already — of the abuses and scandals which have disfigured so many takeover bids with respect to the rights of beneficiaries and the treatment of pension funds. All too often we have seen instances in which pension fund surpluses, which are truly the property of the beneficiaries, have been traded away as part of the assets of the target company or in other circumstances have been the target of the predator company, which has got its hands on those surpluses and in some cases actually used them to pay off part of the purchase price of the company which it has acquired, or even to make redundancy payments to the workers whom it then proceeds to lay off.
For all those reasons, it seems remarkable to me, and remiss of the Government, that they should have rushed to legislate—quite rightly and commendably, as I have said — in this area, but not in respect of those many thousands, indeed millions, of workers who have rights under occupational pension schemes.
The Chief Secretary may perhaps remark that these matters do not arise directly under the clause, but I think he will accept that they are legitimate questions in this

context. We make the point very strongly that if we are to legislate to take account of the impact on employees of the current and projected spate of takeover bids, we must pay attention to the matters that I have sought to raise.
The next Labour Government will certainly take steps to provide new rights of consultation and information for employees. We will also provide appropriate new rights for the beneficiaries of pension funds so that they too can be protected when their interests are affected by takeover bids.

Mr. MacGregor: I think it would be right for me to reply briefly to the point made by the hon. Member for Dagenham (Mr. Gould). One answer, as I think he recognises, is that clause 33 is entirely about employee share schemes and not about anything else. Secondly, it is designed simply to remove a technical tax difficulty that had arisen.
On the third point, I think that the most important answer to his question is that what is being proposed under clause 33 is not to make it obligatory for the acquiring company to extend the opportunity of having a share option to those in the target company who already have share options. There is no new statutory obligation being imposed as a result of this clause. It is up to the acquiring company to decide whether it wants to extend to those employees with share options in the target company the possibility of having share options in the new company. What the clause does is to remove a technical tax obstacle to that. In that sense there is a difference between this and the extension of statutory obligations, in the case of a merger on the acquiring company.
In the case of the jobs of the employees, which was one of the examples that the hon. Gentleman gave, where employees become employees of the acquiring company because it wishes them to remain in their jobs, their tax position is not adversely affected. But if we had not made this change it is possible that those who had share options and were given the opportunity of new share options would have found that their position had been adversely affected, because if, for example, three years had not elapsed since they acquired the option the gain would have been liable to income tax. All we are doing is removing an obstacle, to enable the acquiring company to make that offer. That is probably the crucial difference. That is why I put such stress on the fact that employees should be technically no worse off as far as their share options are concerned and no better off had the takeover not occurred, but it is still available to them not to have the share option at all.

Mr. Gould: I am not seeking to argue that the points I made are on all fours with the precise problem addressed by this clause. I take the point entirely that it follows, therefore, that the mechanism for removing an obstacle in this case may not be appropriate in the cases that I have sought to raise. I am asking the Chief Secretary to address the principle that lies behind this provision—a principle that we endorse and welcome—and the absence of any consideration, so it seems, in the Government's mind of the rights of employees in a more general sense on the occasion of a takeover and. in particular, of the precise rights of beneficiaries under pension funds. At present, as he knows, beneficiaries often have to rely on perhaps badly drawn-up trust instruments of some sort that have very little protection from statutory law.

Mr. MacGregor: We are at one on this clause. The hon. Gentleman is raising much wider issues. Off the top of my head I do not see that there are any obstacles that we are removing here in relation to the straightforward job position of an employee being taken over, because the similar tax obstacles are not there. The question of information goes rather wider than we might be able to discuss on the Finance Bill.
On the pensions issue, again the hon. Gentleman raised much wider issues that should be debated on other occasions. The clause and amendments are fairly narrow but I believe beneficial, and I hope that I have answered the points that the hon. Gentleman raised.

Amendment agreed to.

Sir William Clark: I beg to move amendment No. 5, in page 23, line 7, at end insert—
'(1A) In paragraph 15(1) of Schedule 10 to the Finance Act 1984 for the definition of "qualifying employee" there shall be substituted the following words "qualifying employee" in relation to a company, means an employee of the company (other than one who is a director of the company or, in the case of a group scheme, of a participating company) who is required, under the terms of his employment, to work for the company for—

(a) at least twenty hours a week where the employee has been employed continuously by the company for not more than one year, or
(b) at least sixteen hours a week where the employee has been employed continuously by the company for more than one year but not more than three years, or
(c) at least twelve hours a week where the employee has been employed continuously by the company for more than three years but not more than five years, or
(d) at least eight hours a week where the employee has been employed continuously by the company for more than five years.'.

The First Deputy Chairman: With this it may be convenient to take amendment No. 6, in page 23, line 7, at end insert—
'(1A) in paragraph 15(1) of Schedule 10 to the Finance Act 1984 for the definition of "qualifying employee" there shall be substituted the following words—"qualifying employee" in relation to a company, means — an employee of the company (other than one who is a director of the company or, in the case of a group scheme, of a participating company) who is required, under the terms of his employment, to work for the company for at least twenty hours a week; and any other employee provided that in such a case the number of shares which he is granted the right to acquire bears the same proportion to the number of shares which he would have been granted the right to acquire had he worked for twenty hours per week as the number of hours he is required to work bears to twenty.'.

Sir William Clark: I do not think that I need detain the Committee for long. The share option scheme has been a great success. All parties have welcomed it because the practicality of it and the benefits it gives employees are beyond doubt. It is a great asset and is of great benefit to employees. In the legislation, only employees who work at least 20 hours per week for a company are entitled to participate in share option schemes. Most economic pundits would agree with me that the number of part-time workers will increase in the future. Accordingly, I wonder whether 20 hours per week is the right figure or whether we should reduce it.
Amendment No. 5 proposes that, where an employee does not work at least 20 hours a week but only works 10 hours, 16 hours or whatever, the number of hours worked

plus the length of service should entitle an employee to participate in a share options scheme. If the Government do not like that proposition, amendment No. 6 proposes an equation based on the figure of 20 hours a week. If an employee who worked 20 hours a week under a share option scheme was entitled to 100 shares, an employee who worked only 10 hours a week should be entitled to 50 shares. That is the idea behind amendment No. 6.
I hope that my right hon. Friend the Chief Secretary will not dismiss this out of hand. It is absolutely essential that we give the benefit of share option schemes to regular employees who work, albeit part-time. In the retail trade, in which I have no vested interest, part-time employees who work on a Friday or a Saturday quite obviously do not work 20 hours a week, but they are still regular employees. They may work only 14 hours or 16 hours a week, but the Government should give some thought to including in this legislation those sorts of employees.
The purpose behind my amendment, with which I am sure my right hon. Friend will agree, is that I do not want any loopholes on the matter of share option schemes. Many of these part-time workers, particularly married women, have worked for up to 20 years for a particular employer. Consequently, they should have similar benefits to their colleagues who work 20 hours a week or more. They should not get the same benefits as employees who work 20 hours a week, but, depending on the number of hours they work per week, and upon their length of service with the particular employer, they should receive some benefit. I hope that my right hon. Friend will give sympathetic consideration to both those amendments and I ask the Committee to accept them.

Mr. Tim Smith: I support what my hon. Friend the Member for Croydon, South (Sir William Clark) has said. My name is attached to amendments Nos. 5 and 6. I think all hon. Members agree that the employee share scheme legislation first introduced in the Finance Act 1978, which has been improved in two succeeding Finance Acts, has been an enormous success. I do not know what the numbers are today of employees who participate in Finance Act 1978 schemes, but I believe that not only do a very large number of schemes now qualify but that there are a large number of employees who now hold shares in the companies which employ them as a direct result of this legislation. That is welcome.
It has been possible for any company with a stock exchange listing to set up a scheme of this kind to enable most, but not all, employees to participate. The concern that my hon. Friend and I have is that this should be widened a little. There is no doubt that part-time employment is growing all the time. That is to be welcomed. The object of the two amendments is to achieve some sensible and equitable way of ensuring that part-time employees can participate in these schemes.
My hon. Friend will correct me if I am wrong, but amendments Nos. 5 and 6 suggest alternative schemes to enable part-time employees to participate. Clause 5 proposes reducing the qualifying number of hours in accordance with the number of years that a part-time employee has worked for his company and clause 6 tackles the problem in another way by reducing the number of shares that a part-time employee is able to take in any one


year. When my right hon. Friend the Chief Secretary replies, I hope that he will look at the principle underlying the amendments sympathetically.

Mr. MacGregor: I am grateful to my hon. Friend the Member for Croydon, South (Sir William Clark) and my hon. Friend the Member for Beaconsfield (Mr. Smith) for raising these amendments. I certainly agree with both of them about the great importance of employee share schemes and I share with them the delight about the way in which they have grown and the way in which benefits have been extended to so many more employees over recent years. I also agree with both of them 'about the importance of part-time employment. In no sense in what I am about to say are any of my remarks directed against that.
As my hon. Friend the Member for Croydon, South made clear, the purpose of the amendments is to admit part-time employees to Finance Act 1984 approved employee option schemes. His amendments give us a choice. We considered this carefully when the 1984 scheme was first introduced. Indeed, we modified our original proposals to reduce the qualifying limit for employees who are not directors from 25 hours to 20 hours a week. However, we felt then, and we continue to feel, that it would not be right to go any further, certainly at this stage, and perhaps I can explain why.
My hon. Friend referred to part-timers in a retail shop. Of course, those part-timers can benefit under the schemes in the Finance Act 1978 and the Finance Act 1980. Both those schemes must be available to all the company's employees on similar terms and there are relatively low limits on the level of benefits. Therefore, they are available to part-timers but the scope for abuse in respect of part-timers is limited.
By contrast, the benefits under the Finance Act 1984 schemes can be much greater. Those schemes are discretionary. They do not have to be available to all employees. The point on which one has to reflect is that the scheme in the Finance Act 1984 offers generous tax reliefs and it is aimed particularly at improving the motivation of key employees who can contribute substantially to their company's success. Part-time employees, such as those in a retail shop to whom my hon. Friend referred, may, of course, have an important contribution to make — indeed they do — but by definition it is unlikely to be as substantial or capable of enhancement by improved incentives as in the case of full-time workers. Of course, as with any such limits, some individuals will always find themselves on the wrong side, wherever a dividing line may be drawn. As a matter of judgment we believe that the present rules strike a reasonable balance of 20 hours a week.
It is possible for companies to grant share options to their part-time employees in other ways. For example— I do not float this as particularly likely—they could do so under an unapproved scheme. That would mean there would not be any special tax relief for the employee's gain on exercising the option. More importantly, they could set up a Finance Act 1980 approved savings-related share option scheme. As I said, that would allow part-time employees and directors to take part.
My hon. Friends the Members for Croydon, South and Beaconsfield have made their point succinctly. I agree with both of them on the objective of achieving as wide a spread of share ownership as possible. I have no doubt that my

hon. Friends will continue to watch the progress of the 1984 schemes and may return to the matter in future debates. We can consider it again then. For the reasons I have given, I cannot recommend the Committee to accept the amendments.

Mr. Tim Smith: Under the Finance Act 1978 scheme, what is the qualifying period for participation? I am not clear whether any employee can participate, regardless of the number of hours per week they work or whether there is a minimum number of hours per week that one has to work before participating in a 1978 scheme.

Mr. MacGregor: My recollection—if I am wrong I shall write to my hon. Friend—is that, since the scheme has to be available to all employees, it covers part-time employees of any sort.

Sir William Clark: I understand from the response of my right hon. Friend that he will keep the matter under review and that we can come back to it at some time in the future. I am convinced, as is my hon. Friend the Member for Beaconsfield (Mr. Smith) and I am sure other right hon. and hon. Members, that wider share ownership should be extended. In view of the fact that my right hon. Friend has promised to keep it under review and that we can come back to it in the future, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 33, as amended, ordered to stand part of the Bill.

Schedule 4

EMPLOYEE SHARE SCHEMES, ETC.

Amendment made: No. 8, in page 122, line 38, at end insert—

'PART IIA

CONSEQUENTIAL PROVISIONS RELATING TO CAPITAL GAINS TAX

3A. In section 47 of the Finance Act 1980 (savings-related share option schemes) after subsection (2) there shall be inserted the following subsection—
(2A) Where a right to acquire shares in a body corporate which was obtained as mentioned in subsection (1) above is exchanged for a right to acquire shares in another body corporate in accordance with a provision included in a scheme pursuant to paragraph 10A of Schedule 10 to this Act, the exchange shall not be treated for the purposes of the Capital Gains Tax Act 1979 as involving any disposal of the first-mentioned right or any acquisition of the other right, but for those purposes the other right shall be treated as the same asset acquired as the first-mentioned right was acquired.

3B. In section 38 of the Finance Act 1984 (approved share option schemes) after subsection (6) there shall be inserted the following subsection—
(6A) Where a right to acquire shares in a body corporate is exchanged for a right to acquire shares in another body corporate in accordance with a provision included in a scheme pursuant to paragraph 4A of Schedule 10 to this Act, the exchange shall not be treated for the purposes of the Capital Gains Tax Act 1979 as involving any disposal of the first-mentioned right or any acquisition of the other right, but for those purposes the other right shall be treated as the same asset acquired as the first-mentioned right was acquired.";.—[Mr. MacGregor.]

Schedule 4, as amended, agreed to.

Clause 45

CARRY-BACK OF RELIEF

Question proposed, That the clause stand part of the Bill.

The Economic Secretary to the Treasury (Mr. Ian Stewart): Last year we extended the life of the business expansion scheme indefinitely and, in putting it on a longterm footing, we made a number of changes to focus the impact of the scheme more closely on its original objectives and to improve its operation. After such major changes we think that there is a good case this year for keeping further revisions to a minimum. I am glad that the changes we have proposed were welcomed by the Leader of the Opposition on Budget day.
Clause 45 is intended to reduce bunching of investment towards the last quarter of the tax year. As hon. Members will know, under the scheme relief is given for the tax year in which shares in a qualifying company are issued to an investor following subscription. Therefore, in order to obtain relief in any particular year, there is a deadline for investment of 5 April. Naturally, many people delay making their investment until near that deadline so that they have an idea of what their personal financial affairs are like towards the end of the financial year. For some it may be because they wish to minimise the length of time between paying for the shares and recovering the tax relief. Others may not have a clear idea until a late stage as to what their financial position for that tax year will be, so they have no idea how much money may be available or what tax relief they would get.
As experience of the scheme on the part of investors and promoters has grown, there has been an increase in the amount of investment earlier in the tax year, parti:ularly in the third quarter. However, there is no doubt that it remains more difficult for companies to raise equity under the scheme in the first half of the tax year.
There is no simple solution to the problem. Whatever deadline is set for the making of investments under the scheme, it is likely that there will be a concentration of investments shortly before it. Therefore, simply putting back the deadline would hardly help the companies concerned. However, we believe that the proposal now before the Committee will provide an incentive for more investment to be made under the scheme in the first half of the tax year.
We propose that an investor should be allowed to claim relief in the preceding tax year on up to half of any investments made under the scheme in that period, subject to a limit of £5,000 on the total amount of relief for all investments that can be carried back from any tax year to the previous one. To take advantage of that option, the investment would have to be made during the first half of the new tax year—between 6 April and 5 October. The normal limit of £40,000 on the amount of investment on which relief might be claimed for any one year would continue to apply. I do not suggest to the Committee that that change will eliminate completely the phenomenon of bunching. However, I believe that it will have a valuable impact and will make it easier for companies to raise business expansion scheme finance in the first half of the tax year.

Mr. John Maples: I want to say a few words about the clause, but before I do I should declare

an interest. I do some work for a company that manages a business expansion scheme fund. I hope that what I lack in objectivity will be made up for by a little personal experience.
My hon. Friend the Economic Secretary described the problem fairly accurately but, in fact, there are two problems. One is in connection with BES funds and the other is in connection with individuals. The amendment to the law that he has proposed will go a long way towards solving the problem for individuals. There will be BES issues aimed at them in the first part of the tax year which will give them some relief in the previous part of the tax year, enable the sort of carry-over to which he referred and remove bunching. However, it does not solve the problem of BES funds.
I think that BES fund managers find that they cannot raise money for a BES fund until towards the end of a calendar year because people have no idea what their tax position will be and they want to leave it late. At the same time, the BES fund manager has to give himself room to invest the money. Most of us find that we cannot raise the money until about October in a calendar year and that effectively means that we reach Christmas by the time we have the money. Therefore, we have effectively three months to invest it. My practical experience of the company for which I do some work is that fund managers are running around looking for things in which to invest in March. That is a bad thing. It often means that money is thrown at deals that the scheme was not intended to help promote. The clause will not solve that problem. I shall explain why and ask my hon. Friend whether he will deal with it, if not on this occasion, at a later date.
6.30 pm
The first problem is that if a fund is not fully invested by 5 April, the carry-over relief is of no use, first, because it applies only to half the uninvested amount and. secondly, because the maximum is £5,000. If an individual had put £40,000 into a fund and that fund was 75 per cent. invested by the end of the tax year, the carry-over relief would entitle him to a reduction of only £5,000, not the £10,000 remaining uninvested in the fund. The second problem is that, regardless of how much money one puts into the fund—even if one puts in only £10,000—one is still entitled to a reduction of only half the amount that is uninvested at the end of the year.
The clause represents an attempt to come to grips with a real problem, but it does not do so in respect of BES funds. Although most of the money that has been raised for BES issues in the past couple of years has been in one-off public prospectus issues, my hon. Friend would do well to consider trying to encourage people to make such investments through funds. There is a considerable amount of evidence that many public prospectus issues are put together specifically for the purpose of raising money under the business expansion scheme. They are not preexisting companies that are looking for development capital. Business expansion scheme funds are in a position to find the sort of investments that my hon. Friend wants to see made under the scheme. BES funds are in a position to seek out relatively small companies that are looking for £100,000 to £200,000. However, if a City institution is to promote a BES issue, it has to consider raising £2 million to make it worth the effort.
Not enough of the companies that one wants to help with BES are trying to raise that amount of money.


Therefore, the sorts of issues that are put together in public prospectuses to raise money under the business expansion scheme are — not always, but often — artificially put together solely to take advantage of the BES. One can however, say with a good deal of honesty that money that is raised by BES is often development capital that is genuinely needed in an existing small business.
Although the clause will help to solve the bunching problem for an individual and allow him to wait until the end of the tax year to see how much money he will have to pay on and therefore how much he should invest in the BES because of the relief that he needs, something slightly different is needed for BES funds. I ask my hon. Friend to consider proposing that, as long as the money is invested in a BES fund, perhaps not even by 31 March, but some earlier date such as 31 January in a tax year, the fund managers should have an additional four, five or six months after the end of the tax year to invest the money. In that way, one will encourage people to invest in BES funds and give BES funds a little more time to look for the sort of businesses in which they should invest and not find themselves in the last couple of weeks of March, scrambling around for deals to throw money into. If 5 April arrives and they have not done so, all the tax relief is lost and everybody—the managers and investors—will be in an extremely difficult position. I shall be grateful if my hon. Friend will consider introducing an amendment to that effect at some stage during the passage of the Bill or, if the Bill is lost, in the Finance (No. 2) Bill.

Mr. Tim Smith: There is always a slight danger, on occasions such as this when the Government introduce an extension to an existing tax relief, to say that it is all very well as far as it goes. The business expansion scheme has been a tremendous success. It is an imaginative tax relief, and it has encouraged an enormous amount of investment in new and existing businesses. Treasury Ministers at the time introduced it against fierce resistance from the Inland Revenue. Indeed, the original proposal was that tax relief would be only at the standard rate of tax. If it had been, it would have been stillborn. It is because it is a generous relief that it is a successful scheme. Can my hon. Friend give the Committee some idea of the amount of investment that has been encouraged by the scheme?
On occasions such as this one knows that there will be some abuse. However, we must consider the net benefit. The Government, quite rightly, when it has been clear that the scheme has been abused, have introduced restrictions on qualifying investment. Overall, it has been a successful scheme. Last year, I was glad when the Government decided to make it a permanent scheme. This relatively modest extension recognises one of the difficulties that has occurred — the bunching of investment and the artificiality that that brings, which my hon. Friend the Member for Lewisham, West (Mr. Maples) described. To some extent, the clause gets to grips with that problem.
It might be helpful if my hon. Friend the Economic Secretary would explain why the figure of £5,000 was chosen. I think that I am right in saying that the maximum relief available to an individual in any one year is £40,000. Having decided in principle that it is sensible to allow carry-back on any investment made in the first six months, there must be a case for saying that, that being half the year, one should allow half the relief to be carried back.

Dr. McDonald: In his Budget statement the Chancellor said:

Last year I put the business expansion scheme on to a permanent footing. However, the present rules still produce too much end-year bunching of BES investments, and hence may crowd out some projects and lead to bad decisions on others. I propose, therefore, to permit someone who invests in the first half of the year to claim part of the relief against his previous year's income. This will make it easier for companies to raise BES finance throughout the year"—[Official Report, 17 March 1987; Vol.112, c.820.]
Of course, that has been expressed in the clause.
If the Chancellor had been a little more frank, he would have said, "We tried to get people to invest in small new companies by offering them tax relief. Of course, because people wanted the tax relief, but not to take any entrepreneurial risk, they were only willing to invest in asset-backed enterprises such as private nursing homes. We did try to sort out the worst abuses last year, so give me some credit for that. However, because BES is seen as just a tax dodge"—hence its popularity, which the hon. Member for Beaconsfield (Mr. Smith) did not explain—"people have been thinking about investments only in the last three months of the tax year—January, February and March. This has meant that any half-baked scheme can raise cash in that period, but for the other nine months of the year virtually no project, however well thought out or beneficial to the nation, can raise a bean. Therefore. we shall patch up the BES a bit more by allowing people who invest in the period April to September to claim relief against their previous year's income."
The real question. if the Chancellor had been frank, is whether it is sensible to direct a state subsidy to investment according to the tax planning needs of wealthy BES investors — bearing in mind that the Peat Marwick report showed that 85 per cent. of recipients of BES relief were higher rate taxpayers — rather than some wide-ranging criterion such as the need to create jobs or to improve the nation's industrial performance. They are certainly the criteria that we would apply to any money that is given to support industry, whether directly by grant or through tax relief.
The Inland Revenue statistics for the latest year available, 1984–85 — this is from "Inland Revenue Statistics 1986" — show that 61 per cent. of all BES investment went into companies in the service sector, compared with just under 2.4 per cent. in manufacturing. I mention that, not out of any disrespect for the service sector, but to emphasise that manufacturing needs the greatest Government support. It is the area in which the Government have dismally' failed over the past eight years, as we see if we look at the huge losses in the manufacturing sector and note the Government's own forecast of a deficit. Britain has lost one fifth of its manufacturing sector and the Government expect a vast deficit of £8,000 million this year in manufactured goods. Therefore, it is manufacturing industry that needs the greatest support and encouragement if we are to avoid the expected balance of payments deficit this year.
The regional analysis of business expansion scheme money shows that the destination of just over one quarter of it was described as unknown. That cannot he satisfactory for any Government. Perhaps the Economic Secretary has done a little investigative work on this matter since the financial year 1984–85. If he has. perhaps he will tell us the destination of that quarter of BES money. Of the 74 per cent. that was traced, over 62 per cent. went to the prosperous south-east, 5·5 per cent. went to the north and north-west combined and only 1·6 per


cent. went to Northern Ireland. Those are extremely worrying statistics. The BES scheme weights the relief that is given at the expense of taxpayers in favour of schemes that have been brought into existence in the south-east of England. The BES does nothing to help the serious unemployment in the north and north-west and in Northern Ireland.
The total BES investment was about £140 million. Assuming that all investors pay tax at a rate of 60 per cent., this represents a Government subsidy of £84 million. That expenditure is large. It is important that £84 million of Government money is properly directed, but there is no indication that it has been. The Department of Trade and Industry figures for regional and general industrial support show a steady fall from £791 million in 1980–81 to £277 million in this financial year. Since 1984 a mere £370 million has been given by way of regional developments grants for eligible capital projects.
The Government have provided relief through a scheme that is heavily concentrated in the south-east. It benefits the better-off taxpayers and, as the hon. Member for Lewisham, West (Mr. Maples) said, means that tax relief will go to ill-thought-out schemes and will not be of great benefit to anybody except the taxpayers who receive that tax relief.
There must be better ways of spending £84 million. There must certainly be better ways of keeping track of Government money that has apparently disappeared to an unknown destination. I am sure that the Economic Secretary is extremely worried about that — or is he? Perhaps it does not matter if better-off taxpayers, the higher rate taxpayers, benefit from it. It matters only when we are looking at those who receive unemployment benefit or social security benefits.
The Government have allowed money to be spent—tax relief is a form of spending-without proper checks. This is an ill—directed scheme and it is high time that it was examined once again to see whether there are better ways of giving support to industry, especially in the deprived regions. Instead of accepting the assumption made by either the hon. Member for Lewisham, West or the Economic Secretary that this scheme is permanent, I hope that the Minister will think again. He is prejudging the outcome of the general election. This scheme requires careful examination and we need a redirection of that £84 million.

Mr. Ian Stewart: A number of points have been raised during the debate. The hon. Member for Thurrock (Dr. McDonald) concentrated on her dissatisfaction with the way in which the business expansion scheme works in practice. It is inherent in any scheme of this kind that full information becomes available only gradually. It is important that as more information about past years becomes available to the Inland Revenue the Inland Revenue and Ministers should consider the implications of that. From time to time we should, if need be, make adjustments to the scheme to take account of the information that becomes available. That is what we have done.
6.45 pm
In earlier Budgets we tightened up the focus of the scheme to deal with the problem of asset backing. In this Budget we made the change by way of the clause that we

are discussing about the timing of the investment. I do not think that it is an ill-directed scheme. Funds should be available, and are available, through such a scheme to small and growing companies that need the funds for investment. I disagree fundamentally with the hon. Lady that it would be sensible to try to direct the tax relief to a specific sector such as manufacturing. I hope that more manufacturing and other sorts of companies will be able to take advantage of the scheme, expecially in view of the change that we are now making.
The whole of manufacturing industry is becoming increasingly profitable, and that is the best way to encourage the growth of that industry. When that happens, no doubt more companies within it will look for extra finance. The hon. Lady spoke about 62 per cent. of the money being spent on the south-east. The location is determined by the registered office of the company, not necessarily by the operating area of its activities. Therefore, the fruits of the investment may occur anywhere in Britain, and no doubt frequently do.

Mr. Tim Smith: I was not aware of that important piece of information. Many new or very small companies are extremely unlikely to have their registered offices at the same location as their place of operation. Many of these funds raise their capital in London and are London-based and, of course, their registered offices will often be in the London area. However, the investment might well be elsewhere. Can we get a better survey to find out where these businesses actually are?

Mr. Stewart: The more information that we can obtain on the operation of the scheme the better. I have already said that. As the tax relief relates to the investment in the company itself rather than to the activities that are carried out by the company, it is inevitable, as my hon. Friend said, that the figures will come forward on the basis of the registered office of the company.

Dr. McDonald: The Minister speaks about registered offices, but presumably tax relief is given for a specific scheme. Therefore, one surely knows, not just the location of the head office, but the purpose for which the scheme is designed. I spoke about private nursing home schemes. Presumably one knows the location of the various nursing homes for which relief might be given through a scheme of this sort. Is the Minister saying that he has information only about head offices, and has no information about the purposes of the scheme for which tax relief is given? Surely a geographical element must come into the matter, at least for some schemes, if not for every scheme.

Mr. Stewart: The Inland Revenue does not have information on where the activities of a company as a taxpayer take place and whether it operates through the benefit of business expansion scheme finance or through any other scheme. Such information is not available in the form that the hon. Lady seeks.
I have said, and I repeat, that it is important for us to continue to obtain as much information as possible about the scheme as it goes along. The Peat Marwick report referred only to the operation of the scheme in its infancy. I have no doubt that we shall want more information as the scheme develops, especially in the light of the changes that we have made during the past two years, because we shall wish to see the way in which those changes are reflected in the behaviour of investors and, indeed, in the


behaviour of the companies in which the investment is made. I do not think that there is any difference between us about the desirability of such information, but the matter is not nearly so straightforward, or the information so readily available, as the hon. Lady implies.
My hon. Friends the Members for Beaconsfield (Mr. Smith) and for Lewisham, West (Mr. Maples) raised several points about the proposal in clause 45. My hon. Friend the Member for Beaconsfield asked why the figure of £5,000 was chosen for the amount that could be carried back. My hon. Friend the Member for Lewisham, West complained that only £5,000 could be carried back, and also that it applied to only half the figure. I should like to comment on those points, but before I do so I should like to mention the actual figures. For 1984–85, which is the latest year for which full data are available, a total of 807 companies benefited from the scheme and the amount raised was approximately £150 million. Information on the following year, 1985–86, is not yet complete. However, the indications are that the figures are likely to be considerably higher than they were for 1984–85.
The Peat Marwick report on those figures concluded that the great majority of those funds would probably not have been raised by other means if the business expansion scheme had not been available. Clearly, the scheme has had an important impact in that respect, and has helped smaller businesses and companies to get going in a way that otherwise would not have been open to them. That fully justifies the initiative that the Government took in introducing the scheme.
Let me now deal with the figures. The evidence for the years completed so far, which is all that we have to go on at this stage, is that 80 per cent. of all investors put in sums of up to £10,000 a year. Therefore, £5,000 will be half the figure that covers 80 per cent. of all investors. Although one might argue for another or a higher figure, it is clear that, in the great majority of cases, the figure of £5,000 will be significant and will cover the amounts involved.
My hon. Friend the Member for Lewisham, West made a particular plea on behalf of the funds and said that he thought it would be helpful to have a different regime for the funds because, by their nature, they could spread risk and find investments more readily than could individuals who were looking for direct investments. I beg to differ on that point. I do not in any way wish to denigrate the funds, which have played an important and useful role, but they should not be given special advantages over individual direct investments. In fact, we are in favour of investment of both types. The arrangements that we are now introducing will make such investments easier because, as I have said, it will not be necessary for an individual to wait until the end of the tax year before making an investment that he knows can be set against the taxable income that has already been earned because it fell in the previous year.
Wherever one puts the cut-off date, there is bound to be bunching before the date concerned. However having said that, we shall obviously keep that under review—as, indeed, we have done the entire operation of the scheme

so far. As I said in my introductory comments, the provisions will not necessarily remove all bunching, but they will have a significant effect. If, during the first half of a new tax year, someone knows his taxable income for the previous year, he will now, up to a figure of half of £10,000 — be able to make an investment that will be usable, retrospectively, for tax credit against the previous year, the earnings for which he should know by that time. That should benefit individuals and fund managers. I do not think that it is beyond the ingenuity of fund managers for the BES to work out the best ways of taking advantage of the new proposal.

Mr. Maples: The point that I was trying to make was that this amendment is of no relevance to the BES funds, for the reason that I gave. I understand that My hon. Friend wants the same tax regime to apply to individuals and to BES funds, but the amendment to the law that he is proposing will not be of any benefit to the BES funds, because in no circumstances will they be able to carry over uninvested funds from the end of one tax year to the first half of the next.

Mr. Stewart: The value of the funds is not only to the companies in which they invest, but to the people who invest in them. To the extent that it is easier for those who invest to make such investments at different times of the year, which they cannot readily do at the moment, the provisions are bound to make it easier for the funds to raise money at times other than later in the tax year. The earlier in the tax year that the funds can raise the money, the longer they have to make the underlying investments themselves. Therefore, although the benefit is not directly available to the funds as a result of what we are doing, the advantages to the investors will, by definition, make it easier for the funds to raise money throughout the year.
I do not want to deny that my hon. Friend has a point in emphasising that there are different considerations between funds and individuals. However, I am not persuaded that we should make a separate regime for individuals and funds, because I am in favour of encouraging individuals also to make direct investments through the business expansion scheme. It should be possible for the funds to gain some of the benefit of the willingness of individuals to make investments in the first half of the year, which are encouraged by the clause, and which otherwise they might he reluctant to make. On that basis, I hope that we shall have my hon. Friend's support, and that of others, for the clause.

Question put and agreed to.

Clause 45, order to stand part of the Bill.

Bill (Clauses Nos. 11, 18, 20 to 23, 33, 45, 147 and 160 and Schedule No. 4), reported, with amendments; to lie upon the Table.

CHEVENING ESTATE BILL [LORDS]

Ordered,
That the Order [23rd April] relating to the committal of the Chevening Estate Bill [Lords] be amended, in line 15, by leaving out the words 'Standing Committee' and inserting the words 'Committee of the whole House'.—[Mr. Ryder.]

Orders of the Day — University College of Wales, Aberystwyth

Motion made, and Question proposed, That this House do now adjourn. —[Mr. Ryder.]

Mr. Geraint Howells: I am delighted that I have been given the opportunity to debate the future role of the University college of Wales, Aberystwyth. The college has a special place in the hearts of the Welsh people as it was the first college of the university of Wales to be established, in Aberystwyth. The institution was built through the efforts of many dedicated men and women and by the scarce pennies that were contributed by the people of Wales over a century ago.
The University college of Wales is held in high esteem for sentimental reasons and because of the excellent academic standards that it has achieved over the years. Many distinguished ex-students, many of them in public life, in education and in industry, are making an important contribution to the wealth and welfare of the nation.
It is with horror, therefore, that we learn of the drastic cuts that were imposed as a result of the Government's higher education policies on all the university colleges in Wales, and on Aberystwyth in particular. As a result, between 1981 and 1986 the University college of Wales suffered cuts of about 22 per cent. in its University Grants Committee grant, which led to a reduction of 20 per cent. in its academic staff and of 22 per cent. in other staff. There are now to be further reductions and the future looks even more bleak.
To cope with continuing financial restraints between 1987 and 1990 and to avoid huge deficits, the college is being forced to make further painful decisions that could involve a reduction, either by amalgamation or closure, of the number of departments from 32 to 22 and the loss of up to 75 academic and non-academic posts. When we consider that this is happening in an institution with about 3,000 students and with fewer than 300 academic staff, the seriousness of the situation becomes obvious to anyone.
Over the past few years the college administration has applied itself to coping with immense difficulties. Expenditure on academic services, administration and maintenance has been cut to the bone. The college has been successful, however, in increasing research income and in attracting a growing number of overseas students. At the same time it has pioneered significant developments in transbinary co-operation, which include working with the Welsh college of agriculture and the college of librarianship in Wales. It is therefore discouraging for all those involved — students, staff and anyone concerned about the future of the college—that decisions affecting an important institution in the heart of Wales should be taken by a centralised committee without sufficient weight being given to the special circumstances of the institution.
First, the college is relatively small but broadly based. It is geographically remote from the other constituent colleges of the university of Wales. Any rationalisation within the university has therefore to be limited because of the practical and geographical difficulties involved, and the need to offer an adequate range of mutually supporting disciplines on the one campus.
Secondly, the college has a special role to play in the cultural and linguistic life of Wales. It has therefore to use

a significant part of its resources to accommodate bilingualism and Welsh medium teaching, and to fulfil its obligations as a guardian of Welsh culture.
The college is situated in the heartland of rural Wales and it makes a significant contribution to the economy of that area. It has close ties with the community around it. It is one of the largest employers in an area that is devoid of large-scale industry and business. It is integrated with the life of the surrounding area in a way that few other colleges outside Wales can be. To take away the viability of the college through the implementation of further cuts would be a serious blow to Aberystwyth in terms of jobs and economic prospects. My constituents are aware of this, but their displeasure goes further than that. They are fiercely proud of their university college and of its fine tradition, and anything which diminishes that tradition diminishes us all.
I maintain that the way in which the UGC allocates its funds is grossly unfair to Wales, and especially to the UCW. I do not believe that it takes fully into account the unique character of Welsh colleagues and their special place in Welsh society. The Welsh university tradition is entirely separate from that of England, and this should be taken into account. That is why I share the serious concern of the college at the attitude of the Croham report, which dismisses any idea of a Welsh committee within the UGC. In my view it is essential that such a committee should be set up immediately, as it is the only way to defend the interests of the UCW of Aberystwyth in a climate of dwindling resources and Government indifference to higher education in Wales.
The Government must take responsibility for the serious problems in higher education, because they are starving it of funds. It is demeaning to treat education in terms of profit and loss. I know that it can be demonstrated that Aberystwyth uses its resources with care and responsibility, but the immense contribution that it makes to the community, to Wales and to the world of education cannot be measured in money and its future must be sustained by increased resources and encouragement by the Government.
At this late hour I make a plea to the Minister to reconsider the grants that are allocated by the UGC to the UCW. I hope that she will give the matter favourable consideration and that I can return to my constitutents to say that the future of the college at Aberystwyth is secure for generations to come.

The Minister of State, Department of Education and Science (Mrs. Angela Rumbold): The hon. Member for Ceredigion and Pembroke, North) (Mr. Howells) has presented his case eloquently for the University college of Wales, Aberystwyth. With him, I wish to pay tribute to the UCW's long history of service to the community and to its special place as the senior college of the university of Wales. I recognise with the hon. Gentleman the high esteem in which the college is held within its own area. I recognise also that the funding changes to which the hon. Gentleman has referred that have been introduced over the past five years, the reductions that have gone with them and the policies that underlie them have presented all seven of the colleges in Wales with problems of adjustment. Some of these have been shared with other universities in Great Britain and some have derived from the college's own characteristics.
I am standing here this evening instead of my hon. Friend the Under-Secretary of State for Education and Science with special responsibilities for higher education because he is even now returning from another part of the Principality. My hon. Friend has been visiting University college, Swansea to see for himself how it is coping with change. On a wider front, my right hon. Friend the Secretary of State for Education and Science and my hon. Friend have had the opportunity of discussing these matters directly with senior members of the university of Wales, and have recently met a deputation from the Association of University Teachers in Wales. We are not unfamiliar within the Department with the matters which the hon. Gentleman has raised, and the Government are not unsympathetic. As Minister of State, I take an interest in higher education so I, too, have been following the matters to which the hon. Gentleman has referred with considerable interest.
The public funds available to universities through the University Grants Committee are the subject of at least three levels of decision, and in Wales there is a fourth, owing to the federal structure of the universities. It is important that these levels are not confused.
The first level is the decision made by the Government on the amount of funding; then the UGC decides on the distribution of grants to universities; then the universities settle their internal distribution. Conventions are attached, quite rightly, to the extent to which the Government comment on the decisions, both of the UGC and the individual universities. Those conventions are designed to protect the autonomy of universities. Because those distinctions are sometimes confused, it is important to be clear about where matters now stand.
The Government have made known their expenditure plans for the current financial year and the following two years. Although they are the subject of review, they at least give some indication of what is in the Government's mind. The UGC has informed universities of their initial basic allocation for the academic year 1987–88 and the provisional allocations for 1988–89 and 1989–90. I stress that it is an initial allocation, because the UGC has held in reserve certain funds for special purposes, including measures to promote rationalisation within and among universities. Universities are preparing academic and financial plans which accord with the level of grant they expect to receive.
Within the university of Wales, a related exercise is being conducted by a special working party on rationalisation. The hon. Member referred to the outcome of the rationalisation working party exercise, the report of which has been passed to the colleges, and to Aberystwyth's outlined academic plan. It would not be proper for me to comment on those documents as they are still in a formative stage. At Government level, both the resources we are providing and the policies outlined in our recent White Paper on higher education, to which the hon. Member referred, demonstrate our firm commitment to universities within a wider higher education system.
Last November my right hon. Friend announced an additional £95 million for universities in the current financial year. Additional funds have been made available following the conclusion of a satisfactory academic pay settlement. That means an increase in funding for universities of some 10 per cent. The benefits of that additional funding and the extra money flowing through

the science budget will not be felt immediately, although the benefits of the higher pay are immediate. The funds will not be spread evenly among the universities.
We come to the second level of decision-making; the decisions taken by the UGC. The outcomes of the UGC's resource allocation procedure have been widely misunderstood in Wales as in other parts of the country. It has sometimes been presented, unfortunately, as being discriminatory. It is discriminatory in the sense that it discriminates in favour of research excellence, but it also uses criteria that have been applied fairly to all universities.
Except in respect of certain additional sums made available in recognition of special factors, the UGC's method treats Welsh universities the same as any other universities. I hope that all parties will accept that this is as it should be. All universities, wherever they may be located, should be judged against the same standards, using the same measure of performance.
There is room for debate about what these criteria should he. One criticism levelled against the UGC's allocations is that it tends to favour the larger institutions at the expense of the small ones. Colleges such as UCW are consequently disadvantaged and disfavoured, but that is a matter for the UGC, which has said that it will look at that again, although it appears from the preliminary statistical analysis that smaller institutions generally do not have higher unit costs than larger institutions., I reiterate that the UGC has pointed out its willingness to look further at that.
I should mention two further factors that are relevant to the UCW. The first is the importance of achieving effective rationalisation of provision. That means looking again at the small departments to see whether they are being cost-effective or whether there is a better means of securing academic strength through the concentration of provision.
The Government welcome the lead taken by the university of Wales in promoting and co-ordinating rationalisation among the colleges. I understand that the UCW has the strategic objective of substantially reducing its departments, although that does not imply a corresponding loss of opportunities for students, particularly as it relates to disciplines within larger departments.
The second factor I emphasise is research excellence. The Government have been encouraging the UGC to pursue selectivity in the funding of university research. Selectivity favours those institutions with a proven record of success or where the prospects of success look brightest.
The UGC first introduced more specific selectivity in its grant allocations for the current academic year. In doing so, it made judgments on research quality in 37 subject-related cost centres in every university. Although the UGC was able to identify departments microbiology, botany and international politics-within the UCW, which were above the national average ranking on research, the college did not fare particularly well from the exercise, but I am glad to see that one of the college's explicit objectives is to improve its research ratings. It intends, in its internal resource allocation procedures, to effect that aim.
The hon. Member talked about the Welsh factors arid teaching through the Welsh language. The Government and the UGC recognise the commitment of the university of Wales to Welsh medium teaching and the provision made at Bangor and Aberystwyth. That recognition is given expression in two ways: first, as a special factor, in


effect, as an addition to grant in the allocations made to the two colleges and, secondly, in a separate grant made to the university of Wales registry which covers, among other items, the activities of the board for Welsh medium teaching.
The hon. Member made plain his views about the current committee report and how he feels it would be best to deal with universities in Wales. I take note of those views and will report them to my hon. Friend.
I accept that grant levels have not permitted as much expansion of the board's activities as the board and the university would have liked, but equally the past seven years have seen a substantial development of Welsh medium provision and I hope that more will come. I am assured by the UGC that the level of provision, in its calculations, has not been reduced, although, in accordance with the conventions, the separate elements of each university's block grant are not identified.
Some members of the UCW have argued that the college's commitment to Welsh medium teaching imposes upon it the need for a more generous student-staff ratio than might apply in other areas. I accept that that is the case. The purpose of the special recognition made in the UGC's formula is to take account of the additional staffing need. If the present allowance turns out to be insufficient, that matter can be taken up with the UGC.
Another matter about which the hon. Gentleman made a particular point was the relative geographical isolation of Aberystwyth and the fact that it is located in a mainly rural area of disadvantage in terms of its place and other respects. If there is a case to be made, I am sure that the UGC will listen to it with much sympathy.
One possible disadvantage is that the college might be less attractive to overseas students, but that is not entirely borne out by its success in recent years in considerably increasing the number of overseas students. Therefore, the point about it perhaps being in a disadvantaged area with less opportunity to attract people, and being isolated and in difficulties because of its situation and lack of resources is not entirely borne out by what has happened with overseas students.
Over its 115 years, University college, Aberystwyth has demonstrated great flexibility in responding to changing circumstances, and for that we give it all credit. Now is the time for similar flexibility in order to build on the college's strengths and to improve its overall cost-effectiveness. I am confident that the ingenuity and talent of the present generation of academic leaders within the college will be able to match up to the present challenges in the spirit of their predecessors.

Orders of the Day — Secondary Education

Mr. Patrick Thompson: I am grateful to you, Mr. Deputy Speaker, for giving me this opportunity to speak on the Adjournment on reform in secondary education. We should be debating reform not just because change is a good thing for its own sake, but because there is no doubt that education will be a matter for ever-increasing debate, including debate which may well take place during any coming general election campaign.
It is important that all hon. Members should address themselves to the way in which we can get politics—I mean the wrong kind of adversarial politics—out of our education system. I hope later this evening to give an example of the way in which that might be done.
We must be moving to a way forward in education where we can remove the obvious diversions which appear to exist between political parties and, more often, within the education system itself. After all, the education of our young people is one of the most important matters to which the Government and people of the nation must address themselves.
I am grateful to my hon. Friend the Minister for being prepared to reply to the debate. I hope that she will be able to confirm that, given the present dispute about recent pay talks, the door is open to teachers, administrators and union leaders to discuss the way forward after the interim period through which we are now going. I hope that she will also be able to make a few remarks about the way forward, although I do not propose to devote my speech to the present pay dispute in the teaching profession.
The divisions that exist within education are not helped by the fact that there are at the moment four separate teaching unions. I was a member of the Assistant Masters and Mistresses Association. They are all perfectly respectable institutions in the sense that they all have a history of support, and many teachers have loyalty to all four of those unions. I have excluded the head teachers' unions, which can be added to my remarks.
All the unions take a different stance at different times—and that they are perfectly entitled to do—but in the longer term we should be looking for less division and for a way in which teachers can be represented by a less diverse group of bodies. In particular, I support the stance of the Professional Association of Teachers, at least in one respect. It has always said, and I support this without hesitation, that—if I may use an outdated term—to take industrial action is not the best way for the teaching profession to put its case.
I want to go on record as saying that the best advice for the majority of teachers who want to do the best for children and for the education service, whatever their political views, is that the way forward should not include the taking of industrial action — working to rule or taking strike action. That is not the best way forward, and I join the many others who are appealing to the members of the teaching profession to think again. It is fair enough that they should have different views and put their case strongly, even—with respect to my hon. Friend the Minister — to disagree with Ministers, but industrial action is not a good way forward and in my opinion, as an ex-member of the profession. it does not achieve the best results.
If anyone had any doubts that change was needed in education, they might have been removed if they had looked at the survey in The Independent this morning. It highlighted, as far as I could see without any political bias, the deficiencies in the present system, which is mainly comprehensive. The survey was not criticising the comprehensive system as such. As I understood it, the survey said that, because of all the changes in education since 1945, we have not addressed ourselves properly to what it is we are trying to do in the schools. After all, we are not just trying to get the maximum number of pupils to Oxford, Cambridge or the other universities, or the maximum pass level at GCSE or any other exam; we are trying to decide what skills, qualifications, numeracy, literacy, and so on, we want from our pupils when they come out of the schools. The analysis in The Independent, which has been reproduced elsewhere, put that very well and I would recommend not only my hon. Friend the Minister but any other hon. Member to read it.
Let me take a few moments to point to one or two reforms in the secondary education system that I would welcome. I hope that there will be at least a debate, and perhaps action. In any school in any education system there is nothing more important than the quality of the head teacher and the way in which he leads his team of teachers, ancillary staff and pupils.
My right hon. Friend the Secretary of State has obviously been addressing himself to that problem, but I want to encourage the idea of a staff college to provide specialist training for head teachers and potential head teachers. After all, that system works extremely well in the services. I am not suggesting that such a staff college in education should somehow mimic the staff college at Camberley, but there is a strong case for rigorous, meaningful training for head teachers in management and all the other skills that they will need in addition to their teaching skills.
I am not devaluing the teaching skills required by head teachers, because it is good teachers who should be promoted to headships, but they need other skills as well which they may not have had the chance to develop during the earlier part of their careers. For that reason, I again urge the Government and my hon. Friend to respond positively to the idea of a staff college and management training.
Let me pass on to another suggestion that relates to my remarks about the profession, its behaviour and the unions. The majority of teachers have high professional standards and are committed to their work. Indeed, I should like to take this opportunity to pay tribute to the schools and to the overwhelming majority of teachers in Norwich who are doing sterling work, far beyond the call of any special contract or written agreement, for the sake of their pupils. That is continuing all the time and must be recognised by hon. Members.
Nevertheless, there is still the problem of industrial action and other actions by teachers which do not have a good effect on their professional status. Therefore, I should like to recommend for serious consideration by the Government the setting up of a professional teachers' council. That is quite distinct from the unions. After all, any body of employees has a perfect right to set up a union under the law, and I shall not comment on that now. But, in addition, we could set up a professional teachers' council which would have the task of setting and monitoring professional standards for members of the

teaching profession—whether ensuring that political bias is not introduced into schools, or setting standards or a code of conduct for teachers.
There are many roles that such a body could fulfil, in the same way as the British Medical Association and other bodies perform such functions for doctors and members of the fraternity. I hope that my hon. Friend the Minister of State will comment on that, and perhaps suggest that the matter may be considered in the future.
I should now like to move on from the teaching profession to the way in which the secondary school system is now run. I am delighted that my hon. Friend the Member for Norwich, South (Mr. Powley) has joined me, as I wish to refer to a topic that has caused considerable unease among my constituents and his. At present, the local education authority administers the way in which children are allocated to various secondary schools. Of course, there is the Government principle of freedom of choice for parents, but we all know how that works out in practice. Many parents write to me, as their Member of Parliament, saying that they have been unable to secure the school of their choice. They then go on to appeal; but even after they have appealed, the system still seems to work against them. The present arrangement is causing a great deal of unhappiness, which we in Parliament should at least consider, and perhaps try to legislate to remove it.
I recommend to my hon. Friend the Minister serious consideration of the question of open entry to our schools. Anyone who knows anything about education — including my constituents—will know that there are all sorts of snags inherent in such a scheme; but I ask my hon. Friend to consider the matter seriously and see whether those snags can be ironed out. As I said at the beginning of my speech, I should particularly like to see politics taken out of education, and that is one of the reforms that will be necessary if we are to achieve our aim. I believe that entry to a school should be determined mainly through discussion between its head teacher and governors, and indeed members of staff and parents.
While some schools may not necessarily be able to expand fast enough to take all the pupils who want to go to them, it would at least be a step in the right direction if we took the matter out of the hands of the present administrative structure and introduced open entry. We may have to couple that with a change in the way in which funding goes into schools. In the short time available, let me hint at what I should like to see happen.
Under the system I should like to see in operation, a capitation allowance would be paid directly to a school for each child who attended that school. If the school were expanding, there would be at least the possibility of its receiving more money, and putting up extra buildings and employing extra staff to cope with the demand. Many people say that the less good schools that are not so popular will go into a vicious spiral of decline and disappear out of existence. But, from my experience of the independent sector, I do not believe that that will happen. If for any reason a school becomes less popular, it may go into a short-term decline. That, however, presents a challenge to the head teacher, the staff and the governors. They will ask, "What are we trying to do? Why are we not attracting the number of pupils that we are able to take?" After suitable discussion, they will take action to arrest the decline, and the inevitable result will be an improvement of standards all round. That argument, therefore, can be rejected.

Mr. John Powley: I am grateful to my hon. Friend for giving way to me, particularly on a point about which I have some feeling and knowledge.
Is my hon. Friend agreeing with the philosophy expounded by the present Government about giving greater autonomy to the governing body of a school for its financial management? As he may know, I was a governor of the Manor school in Cambridge before I moved to Norwich. That school participated in an experiment to give the headmaster and governors greater autonomy in the financial management of the school. I hope that my hon. Friend will agree that, if that philosophy were followed — I do not hear many encouraging noises from some teaching unions, but I hope that it will be followed — one of the ways in which governing bodies and teaching staff could attract pupils to their schools would be by having greater independence and more say in how their school is run and how disciplines are operated, and thus being given greater management of their own affairs.

Mr. Thompson: I thank my hon. Friend for his intervention; I entirely support what he has said. I trust that he will allow me to give an example that illustrates my point — although the matter is out of our hands at present and, indeed, I cannot make any comment on the actual processes involved.
Bowthorpe school, in my hon. Friend's constituency, is now a highly controversial subject, and I am recommending that politics should be taken out of education, not put back into it. However, I will say that, if the open-entry system that I have recommended were adopted—along with the independence of schools and governors referred to by my hon. Friend—any future problem similar to that faced by the Norfolk education committee and the head teachers of Bowthorpe school would be dealt with in an entirely different way. If the roll of a school in the position in which Bowthorpe school has found itself was declining, it would be up to the head teacher and the governors to decide together how to address the problem of decreasing finance, and how to move forward into the future. I hope that my hon. Friend will agree that, under such a system, politics would probably be partially—if not totally—taken out of such circumstances.
Let me say in passing how much I welcome the move already made by my right hon. Friend the Secretary of State to devolve more power to head teachers. I do not wish to comment on that in detail, because we have already heard welcome announcements about it.
I referred earlier to pay and possible future negotiations. Let me now make a further point connected with the issue of the independence of head teachers. I should like pay negotiations in the longer run — whatever form they may take in the future — to be mainly concerned with the basic or minimum rates. In the independent sector, head teachers have much more room for manoeuvre on how much they pay individual teachers—possibly because they want to attract more teachers, particularly in shortage subjects such as physics, mathematics, craft design and technology. If we laid down that pay negotiations should address only the minimum levels and gave head teachers more power—as my hon. Friend the Member for Norwich, South and I both wish—that could be applied to pay as well. That is something that we might consider in the longer term. I should be interested to hear the response of my hon.

Friend the Minister, and I hope that she will comment on how we are progressing with the serious shortage of physics and mathematics teachers, about which I have often spoken in the House.
It would be foolish, in my implied criticism of the way in which secondary schools are run, to minimise the severity of the problems posed for local education authorities by the dramatic fall in school numbers since 1979. Hard decisions about administrative reorganisation and school closures have had to be taken. Unfortunately, attempts have been made to pass on responsibility for those problems to the Government. An unholy alliance has been formed between the Labour-led local authorities trying to extort further resources from the taxpayer and teachers' unions seeking pay increases beyond the local authorities' income.
The debate on the future of education is not, therefore, just the product of the recent disruption in the schools. The fundamental problems lie in the structure of the system itself. I have not had time to develop all the changes that I should like to see, but I have referred to some of them. The basic objectives of education are poorly defined at the moment, as was pointed out in this morning's article in The Independent. Furthermore, the educational attainments to be sought by pupils are highly obscure. The active and effective participation of parents has been impossible until very recently.
Largely because there is little or no effective freedom of choice for parents or pupils within the state sector, the vested interests in the educational establishment — the civil servants in the Department of Education and Science, the administrators working for the local education authorities, the union leaders and some local authorities have been able—how can I put this courteously, Mr. Deputy Speaker?—to resist positive change. It is for this reason that a whole range of issues, covering the restoration of educational standards, open entry and capitation, the formulation of a national curriculum to which my right hon. Friend the Secretary of State is addressing himself, and about which, if I had had more time, I should have spoken enthusiastically — perhaps my hon. Friend the Minister of State will comment on that point—have been treated as politically taboo.
This is a challenge that the Government and the Conservative party, as we approach the general election, must accept. There must be a fundamentally new strategy for education that draws pupils, parents and teachers into an effective partnership, enlarges the range of choice and provides real freedom in education, while reducing bureaucratic control. That will require clear educational objectives, better administrative arrangements and proper safeguards for the teaching profession. I look forward to my hon. Friend's comments, enthusiastic or otherwise, on what I have said.

Mr. Deputy Speaker (Mr. Harold Walker): Does the hon. Lady seek the leave of the House to speak again?

The Minister of State, Department of Education and Science (Mrs. Angela Rumbold): Yes.

Mr. Deputy Speaker: The hon. Lady has the leave of the House to speak again.

Mrs. Rumbold: With the leave of the House, Mr. Deputy Speaker, may I respond to the very interesting


points that have been made by my hon. Friend the Member for Norwich, North (Mr. Thompson) about the reform of the education system. I believe, with him, that for too long we have allowed our education system to wander without very much sense of direction. It is important that we have a clearer idea of where we want to go.
I accept with alacrity my hon. Friend's point about the politicisation of some local education authorities. Sadly, one has to look no further than the recently published HMI report on the London borough of Brent to see what happens if a local education authority decides that its priorities are other than the needs of the children for whom it ought to provide a sensible system of education.
The report saddened me, not just because it is apparent that the management of the local education authority has become completely out of touch with the needs of the children, but because I believe profoundly that young people should be served well by the schools that they attend and by their teachers. Therefore, my right hon. Friend the Secretary of State for Education and Science and my colleagues and I are very worried that children in Brent are not receiving the education to which they are entitled.
My hon. Friend referred to his concern about the action that some teachers are taking on pay and conditions of service. It is worth putting on record yet again exactly what has happened in the last few years. I was a member of the Burnham committee, and according to the records there were 12 pay negotiations. Of those 12 pay negotiations, only three ended in a negative settlement. In the other negotiations, there were interventions, sometimes ACAS had to be brought in, and at one time there was a pay policy. No clear and straightforward settlement was reached in the very unsatisfactory Burnham committee negotiations. Therefore, its passing has not been regretted by anybody.
Apart from the Burnham committee being put out of its misery, equally unsatisfactory arrangements have been in existence for about six years. The local education authorities were supposed to sit down with the teachers unions and discuss conditions of service, but the working party failed to meet on a number of occasions because one or other of the union leaders did not wish to attend the meeting. That shows how impossible it was for the local education authorities and the unions to get together to determine conditions of service.
To put that matter right the Government decided to introduce legislation that would lead to the setting up of an interim advisory committee to look into pay and conditions of service for teachers. At the same time, the Government granted a pay award to teachers which, in this calendar year, amounts to a 16·4 per cent. increase. Taken together with the negotiated arrangements for the immediately preceding period, over 18 months that will amount to a 25 per cent. increase in the basic rate of pay for teachers. By no stretch of the imagination can that be considered to be other than a most generous pay award.
When people look at what is happening now in the schools and see that the major unions are still involved in action because not all of the package is entirely to their satisfaction, they find it hard to understand why, after such a generous pay award, the teachers are not seeking other means to discuss their differences with the Government.
My hon. Friend would obviously like me to say more about how, ultimately, we hope that the pay and conditions of service of teachers will be determined. My right hon. Friend has said on a number of occasions that the interim advisory committee is indeed an interim body and that he does not wish to have to determine teachers' pay and conditions of service. Later this year, therefore, he hopes to open discussions with the teacher unions, the churches, parents and all those who have an interest in education in an effort to find the best way in which rates of pay and conditions of service can be determined. My hon. Friend's suggestion that there should be a professional council for teachers may then be considered.
Of course, we need to look at other matters too. I have a great deal of sympathy with my hon. Friend when he talks about the management of schools. It is of great importance, not only that our schools are clear in their objectives, about what they are in business for, but that they are managed well. The head teachers in our schools have a heavy responsibility. It is not simply a matter of becoming a super teacher. It is also a matter of going into an institution, into a business. One can draw a parallel, as many do, between the management of a school and that of a business, because a considerable degree of management skill is needed for a school to be run effectively. This applies not just to a large comprehensive of 1,500 children or so but to the smallest primary school. The skill of managing how the children are taught and how best to cope with staff is something that many teachers need. It seems to me fair to suggest that an institution or organisation might be set up to provide potential head teachers with the specific management skills needed to run a school.
That leads on logically to the whole question of how schools are governed. When it comes to what Government have already done to ensure that the customers, the parents, are more involved in the schools which their children attend, the 1986 Act, which I am proud to have had a very small part in putting through the House, is the first step in making sure that parents have a firm part in the government and management of schools.
It is not enough, however, just to give parents a role in governing. We must ensure that they have more than a vague idea of their role. They need a clear managment objective when they become governors. It is more than simply going to a few meetings and doing one's duty as a governor in attending and making decisions. There is the whole business of what the school is doing, how its curriculum is managed and whether the funds for which the head teacher is responsible are being well spent. Governors must also consider the ethos of the school and its discipline, because it is the head teacher, on the whole, who is responsible for the ethos of the school. Nevertheless, that can be determined by a strong governing body, and certainly by a strong chairman of governors. So it is not just the training of head teachers but the training of governors that is an important part of the philosophy that we want to develop.
Greater financial delegation to schools has been broached by my right hon. Friend the Secretary of State, who believes that the experiments and pilot schemes currently being run in Cambridgeshire, Solihull and other parts of the country demonstrate clearly that, where schools and, in particular, head teachers, are given the chance to manage the finances, the schools are more likely to be better run and those involved are more likely to feel


that the decisions taken actually relate to the institution. In this way one can draw together the responsibility of the governing body, the responsibility of the head teacher and the good management of the school much more easily and reasonably.
Earlier today my attention was drawn to a report about furniture in schools. Hon. Members may wonder why I want to talk about furniture in schools, but it seems to me a good example. The report concludes that where furniture is purchased in bulk by people who do not use it themselves, those who use it feel no great responsibility for it, and that the state of the furniture in schools at present is rather deplorable. The Government have taken that into account in their funding of local education in this next financial year. We have given a substantial increase to local authorities, amounting to almost 19 per cent., to allow them to put right furniture and equipment which may not be up to the best standards. Financial delegation, however, would vastly improve the chances of purchasing furniture that was well made and represented good value for money, and once the furniture was installed, governors and head teachers would be much more interested in how it was cared for.
My hon. Friend also touched at some length on the matter of open enrolment. In other words, he developed a theory that is very close to his heart, that it should not be possible for a local authority to restrict, even under the more recent Act introduced by the Government, the number of children going into any given school. He developed the view that if parents had access to the school of their choice, and if that school could take the number of children who wanted to go there, the authority should fund that school according to the number of children attending it.
I understand that philosophy very well. When I was chairman of a local authority, I had on one occasion, because of a vast over-subscription to one extraordinarily popular single-sex girls' school, a very difficult problem. We had about 100 more people wanting to go to that school than we could possibly accommodate. It seemed to us almost impossible to tell 100 sets of parents that their children could not go to that school. To everyone's horror, I went to the headmistress and asked whether it was possible to take two more forms of entry for that particular year. Could she take 60 more girls? She said that it would be difficult, but not impossible, and we managed to accommodate the vast majority of parents who wished their children to attend that school, by the use of a simple

methodology, flexibility. Of course, we had to give extra resources to the school and make sure that there were sufficient classrooms, books, and so on, but by being flexible as an authority we met the parents' wishes. That was exactly the right thing to do, in my view.
I note with interest exactly what has happened to Bowthorpe school. I note also my hon. Friend's views on how one could extend entrolment to schools within authorities. I hope that he will accept with me that such a philosophy, which I would welcome, would have to be worked out with our colleagues in local authorities, because it is not something that we would wish to go into unless we were certain that the schools that were not as popular with parents would not suffer dramatically and overnight, since that would jeopardise the education of children already in schools whose popularity was or might be declining.
It is important to point out to my hon. Friend that his philosophy on the way in which he would fund a school depends very much on how good that school is. Schools are chosen by parents for different reasons, but mainly because they have discovered, by the normal process of talking to other parents at the school gate or by talking to their neighbours, why they have chosen certain schools.
For the most part, schools get a good reputation if the leadership is good. Often a good head teacher will make a school greatly desired by parents. It is not always the case that a good head teacher or a head teacher who has created the impression that his or her school is excellent is actually delivering excellent education. Therefore, while one accepts that there should be financial delegation to heads, that open enrolment should be encouraged, and that head teachers should be trained, there is another facet to the reforms that I hope my hon. Friend will accept, namely, the introduction of a basic national foundation curriculum, on which my right hon. Friend hopes there will be a wide national debate.
While all the ideas about management and about how children can get into schools can be discussed at length and can be put into practice, unless what goes on in the schools is coherent, well thought out and based on the best practice, and unless the fundamentals of what children are learning are understood by the people as being valuable, we shall not make any progress in our plan to reform education.
I hope that with those few words I have managed to reassure my hon. Friend that we are talking much the same language and that the Government are studying closely many of the ideas that he has put forward.

Orders of the Day — Higher Education

Mr. Timothy Wood: I am grateful for the opportunity to speak on higher education in the Adjournment debate, particularly following the Government's recent publication of a White Paper on the subject. That White Paper sets a most encouraging tone for the future of higher education, which I greatly welcome.
Good education, whether at school or in higher education, is one of the most important investments for the future of the individual and of the nation. There is no doubt in my mind that the quality and quantity of higher education will be important factors in enabling the country to develop new products and services from which our businesses and industry can enable the country to flourish.
There is a good story to tell on student numbers. Over the past eight years the number of British students in higher education has risen by more than 85,000 to over 500,000, an increase three times greater than was achieved during the previous decade. This has resulted partly from the peaking of the number of 18 and 19-year-olds in 1982. Perhaps more significant is the steady increase in the number of able young people who wish to take advantage of higher education. With Hatfield polytechnic being only a few miles from Stevenage I am pleased to observe that polytechnics have played a major role in providing for the growth in student numbers.
As regards the future, I am pleased and relieved that the White Paper plans for a growth in student numbers over the next few years and envisages steadily increasing participation. The larger figures now projected are vital if we are to compete effectively as a leading nation in an increasignly competitive world.
There are four areas upon which I should like to dwell briefly: first, the position of polytechnics; secondly, funding for higher education thirdly, the emphasis on different types of courses; and fourthly, the funding for research in higher education institutions. The polytechnics have clearly established themselves as institutions providing excellent education. Industry values particularly the sandwich courses that are often provided and the close co-operation that frequently exists between the polytechnics and industry and commerce, both in the locality of the polytechnics and sometimes more widely. Again, Hatfield polytechnic has close contacts with British Aerospace, Marconi Instruments, STC and various companies which are able to co-operate with it in producing useful courses for students and also in developing various scientific research projects.
I have noticed at Hatfield and at other polytechnics that there have been strains in the relationship between the polytechnics and the local education authorities. Although the local education authorities frequently regard polytechnics as the jewel in the crown of the spectrum of education for which they are responsible, nevertheless there is a great deal to be said for the proposal in the White Paper of a system of control analagous to that applying to universities. Therefore, the proposal for a polytechnic and college funding council is an important step forward for the future of polytechnics. They will be able to advance even more effectively in such a structure. Quite a few local education authorities have found the polytechnic to be such an unusual item in the education activity in which

they are involved that they have not been able to address the problems of the institution effectively. Under the proposals in the White Paper there are much better prospects of polytechnics being treated more satisfactorily.
On the general question of the funding of higher education, concern has frequently been expressed to me and to other hon. Members about the funds being provided to universities, polytechnics and colleges. I understand and sympathise with some of the worries put forward but I also believe that in the 1970s there was much waste in various sectors of higher education, with numerous courses being indifferently controlled and monitored. There is a great need for a much more stringent examination of the financing of courses and of the need for certain courses. Nevertheless, the substantial increase in higher education funding for this year is greatly to be welcomed. Some institutions were finding the pressures very great. Hatfield polytechnic had commented to me on several occasions that with the substantial increase in the number of students, the strains on staffing activities and so on were considerable.
I should like more funds for research, particularly scientific and technological research. There is considerable potential for funding from industry and commerce. To encourage the provision of such funds more imagination should be shown to ensure better co-operation between higher education institutions and industry and commerce. A number of higher education institutions have complained to me that if they are successful in obtaining extra funds perhaps their funding from the local education authority or Universities Grants Committee has been adversely affected. That is hardly an encouragement for higher education institutions to seek to co-operate more.
The final point concerns priorities and emphases on different types of courses being provided in higher education. Criticisms have been made that the Government were taking a philistine position in urging that larger numbers should be educated in mathematics, certain sciences and technologies, and perhaps relatively fewer in the more abstruse subjects. I reject these criticisms. With half a million students in higher education, it seems perfectly sensible to encourage the expansion of those activities that will be most directly relevant to the various needs that industry may have in this country in the coming years.
A total of 500,000 people are in higher education—a large number. Those young people must be encouraged to pursue courses and to develop ideas in areas that will benefit both them and the country as a whole in the future. Therefore, I hope that the Government will not be deterred — and the White Paper suggests that the Government are not being deterred—from making sure that the priority will be to encourage higher education being well directed to the future needs of the country, its industry and commerce.

The Parliamentary Under-Secretary of State for Education and Science (Mr. George Walden): I am glad to respond to the positive and forward-looking speech of my hon. Friend the Member for Stevenage (Mr. Wood). He has been a lecturer in high-tech subjects with one of our largest firms, and he is talking from personal knowledge and a more general interest. The Hatfield polytechnic is very close to Stevenage. I was there recently and I had an opportunity to discuss with the deputy director some of


the problems and prospects facing that institution. My general impression was of optimism and forward-looking attitudes.
My hon. Friend is right to stress the importance of polytechnics in higher education. Polytechnics have improved their efficiency greatly and are now a major part of higher education. The Government has been following with gratitude the efforts that polytechnics have been making to accommodate more students.
My hon. Friend next raised the question of funding. Last year we increased funding for polytechnics and colleges by 8·5 per cent., which is well over the current rate of inflation.
The third point my hon. Friend dealt with was research in the polytechnic system. Although there has been a lot of contact between polytechnics and industry, as in the universities, we recognise—as do other members of the educational and business communities — the need to expand contacts between education and industry. We have seen positive proof of this expansion in the polytechnics, in increased investment, industrially related development, and also a major increase in the role of the provision of training by the polytechnics.
Government policy in this regard is to do everything we can to encourage these developments. That is the reason why we set aside last year £15 million to be directed specifically to encouraging a number of initiatives, including research in polytechnics. We were careful to stress, as we shall continue to stress, that the sort of research that we want to be pursued in polytechnics and colleges must be of the applied variety and closely associated with industry. This has been accepted by the polytechnic community. The sums that we offered, which in effect doubled the amount of finance available for

research, were applied for by many polytechnics and colleges. Our philosophy is to encourage contacts with industry by encouraging polytechnics to bid with a business plan for the available funds.
Finally, my hon. Friend mentioned courses and the pattern of courses between the arts and sciences in higher education. There is a widespread misconception that this Government have a philistine attitude to education and to higher education in particular. Nothing could be further from the truth. Not only do we not underestimate the contribution of the arts and humanities but, in simple figure terms, such has been the expansion in the number of students since 1979 that there are now not only far more students doing science-related courses than ever before, there are also more students doing arts-related courses. Since 1979 we have increased student numbers by 160,000 full and part-time. We hope now to add to that another 50,000.
Whereas I welcome the stress that my hon. Friend placed on the need for vocationally orientated courses, particularly in science-related subjects, I am sure he agrees with me that the humanities — whether languages, economics, business studies, or humanities in their purer form, the classics, or whatever—have a very important role to play in higher education, both for their own value in themselves and also for training the mind in rigour and dexterity.
I am glad to have had this opportunity to respond to my hon. Friend's points. I share his optimism about the future of higher education in this country in general and about the new prospects that the White Paper offers for polytechnics in particular.

Question put and agreed to.

Adjourned accordingly at seventeen minutes past Eight o'clock.